Options are granted to top corporate executives because:
A) executives will make better business decision 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 the above.

Question

Quizplus · Accepted Answer

A) Executives are granted options as an incentive to make better business decisions that benefit the shareholders, as the value of the options will increase if the company performs well.

B) Options are typically tied to the company's performance, so if the company does well, the executive's options will be worth more. This aligns the interests of the executive with those of the shareholders.

C) Options are often structured to be tax-efficient, with taxes only paid when the options are exercised. This makes them an attractive form of compensation for executives.

Taken together, these factors explain why options are commonly granted to top corporate executives.

Options Are Granted to Top Corporate Executives Because