Incentive efficiency of stock versus options

Gerald A. Feltham, Martin G.H. Wu

Research output: Contribution to journalArticlepeer-review


This paper examines the relative incentive costs of using stock versus options in management incentive contracts that use market price as the performance measure. We establish that if the manager's effort has little or no effect on a firm's operating risk, then the cost of incentive risk is less using stock rather than options. However, this result is reversed if the manager's effort has a significant impact on the firm's operating risk.

Original languageEnglish (US)
Article number323751
Pages (from-to)7-28
Number of pages22
JournalReview of Accounting Studies
Issue number1
StatePublished - 2001
Externally publishedYes


  • Employee stock options
  • Executive compensation
  • Incentive efficiency

ASJC Scopus subject areas

  • Accounting
  • General Business, Management and Accounting


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