Stock Options Make for Risk-Happy CEOs

Outright ownership leads to more cautious executives, study shows
By Kevin Spak,  Newser Staff
Posted Oct 13, 2007 2:59 PM CDT
SAN FRANCISCO, CA -- Traders man the phones on the options floor at the Pacific Exchange in San Francisco, California, during the first hours of trading on Monday, September 17, 2001.   (KRT Photos)
camera-icon View 2 more images

(Newser) – Companies compensating their CEOs with stock options should prepare for a bumpy ride, as those CEOs are more likely to take big chances that backfire, a new study finds. Shareholders took extreme losses from more than 10% of option-heavy CEOs, compared to 6.8% who saw big gains. The study's authors say it’s like “handing money to a gambler and... promising to share only the upside.”

The review of 950 companies in a range of industries by management professors at Penn State and BYU tracked results between 1993 and 200, Reuters reports. “There are only a few hitters who when they swing for the fences get a home run,” BYU's W. Gerard Sanders adds; conversely, only 2.5% of option-light CEOs steered their companies to extreme loss.