You Can't Take it with You: Sunset Provisions for Equity Compensation When Managers Retire, Resign, or Die

40 Pages Posted: 13 Nov 2008

See all articles by Sandeep Dahiya

Sandeep Dahiya

Georgetown University - Department of Finance

David Yermack

New York University (NYU) - Stern School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: December 2007

Abstract

Company stock option plans have diverse â¬Ssunsetâ¬? policies for modifying terms of options held by managers who exit the firm. In our S&P 500 sample, these forfeiture, vesting, and expiration provisions are less generous in companies characterized by fast growth, dependence on skilled human capital, and high strategic interaction with competitors. While these results apply forworkers who retire at the end of their careers, almost no variation exists in the treatment of workers who resign with the possibility of working elsewhere. We show that these features of firmsâ¬" option plans directly impact management turnover. For CEOs over age 60, companiesâ¬" sunset rules imply large discounts to option award values and estimates of total compensation. The authors appreciate helpful comments from Manuel Ammann, Patrick Bolton, Jennifer Carpenter, Don Chance, Stephen Choi, John Core, Joan Heminway, Tracie Woidtke, and seminarparticipants at Chinese University Hong Kong, Fordham University, Georgetown University,Mannheim University, University of St. Gallen, University of Tennessee, and the Gerzensee European Summer Symposium in Financial Markets.

Suggested Citation

Dahiya, Sandeep and Yermack, David, You Can't Take it with You: Sunset Provisions for Equity Compensation When Managers Retire, Resign, or Die (December 2007). NYU Working Paper No. FIN-06-016, Available at SSRN: https://ssrn.com/abstract=1300766

Sandeep Dahiya (Contact Author)

Georgetown University - Department of Finance ( email )

3700 O Street, NW
Washington, DC 20057
United States
202-687-3832 (Phone)

David Yermack

New York University (NYU) - Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY 10012-1126
United States
212-998-0357 (Phone)
212-995-4220 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~dyermack

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
92
Abstract Views
1,202
Rank
123,360
PlumX Metrics