Incentives of Employee Stock Options: Insights from HR Perspectives

摘要

This study simulates five different employee stock options (ESOs) pricing models with multiple variables, and examines the issuing costs and incentive effects of them. Not only reviewing some extant classic option pricing models in terms of issuing criteria, spirit, and pricing formula, but this study also offers HR executives some decision-making suggestions from different angles like individual firm's financial situation and global economic environmental changes. The result shows that the indexed option is superior, because it holds the lowest issuing costs and creates stronger incentive effects against lower stock prices or lower stock return volatility, and greater incentive effects against a higher risk-free rate. Theoretical and managerial implications of the results are also discussed.