Options are granted to top corporate executives because:
A) executives will make better business decisions in line with benefiting the shareholders.
B) executive pay is at risk and linked to firm performance.
C) options are tax-efficient and taxed only when they are exercised.
D) All of these.
E) None of these.

Question

Quizplus · Accepted Answer

Options are granted to top corporate executives because:
A) executives will make better business decisions in line with benefiting the shareholders.
B) executive pay is at risk and linked to firm performance.
C) options are tax-efficient and taxed only when they are exercised.

All of these are true. By granting options to executives, it incentivizes them to make business decisions that will benefit shareholders, since the value of their options is directly tied to the value of the company's stock. Additionally, because options are only profitable if the company performs well, executive pay is at risk and directly tied to the firm's performance. Lastly, options are generally taxed more efficiently than regular pay, since they are only taxed when exercised.

Options Are Granted to Top Corporate Executives Because