In our paper, Changes in CEO Stock Option Grants: A Look at the Numbers, we look at changes in stock option granting behavior towards CEOs. We find that, on average, the number of stock option grants to CEOs changes over time, and that such changes can be predicted by CEO corporate investment decisions; CEOs of firms that have very high or very low levels of investment subsequently receive fewer stock options.
We focus on the number of stock options granted to CEOs. We know relatively little about how the number of options granted changes over time, and how this varies across firms, even though regulators and investors often focus their attention on the number of stock options granted. For example, under current NYSE listing requirements, companies need only to obtain shareholder approval for the total number of options to be granted, and not for the value of these options. Consistent with this focus, patterns in option pay, such as the rigidity of annual stock option grants, and the high correlation of CEO pay with stock market indices (Shue and Townsend 2017), suggest that boards also think of option compensation in terms of numbers of options granted. It is natural for boards to focus on the number of options granted, as this is the main item over which they can actually exercise control. Nevertheless, academic research mainly focuses on the dollar value of stock option grants. Our paper examines option-granting behavior using the number of options granted as the main outcome variable. Do boards grant the same number of options to CEOs each year, or do they revise their granting behavior? What factors drive changes in stock option grants?