Description:
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<jats:title content-type="abstract-subheading">Purpose</jats:title>
<jats:p>This paper aims to develop a conceptual model that systematically interprets how key governance factors drive the alignment and the rent-extraction effects of executive stock options (SOs) as proxied by plan characteristics.</jats:p>
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<jats:title content-type="abstract-subheading">Design/methodology/approach</jats:title>
<jats:p>The authors draw on the review of 202 articles published in international academic journals. They collect data from library databases and by hand-searching and citation-tracking relevant papers on the topic. Moreover, the authors review and classify the studies as related with determinants or proxies of alignment and rent-extraction effects of SOs.</jats:p>
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<jats:title content-type="abstract-subheading">Findings</jats:title>
<jats:p>The conceptual model systematically interprets the results of the literature review and identifies the relationships between archetypes, driving factors and proxies of the rent/alignment effect of executive SOs. It highlights that, given ownership archetypes, effective (ineffective) governance practices drive the alignment (rent) aim of SOs as proxied by the optimal (non-optimal) plan design.</jats:p>
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<jats:title content-type="abstract-subheading">Practical implications</jats:title>
<jats:p>This paper supports compensation committees in selecting the SO characteristics that better attract investors and retain executives. Moreover, it guides future policy making interventions aiming at mitigating the rent-extraction effect of SOs.</jats:p>
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<jats:title content-type="abstract-subheading">Originality/value</jats:title>
<jats:p>The paper highlights that the governance determinants of SO aims can be effectively classified as archetypes or drivers of rent-extracting and aligning outcomes of these remuneration tools. Moreover, it offers a useful framework to guide future research efforts by providing a comprehensive interpretation of the relationships between ownership archetypes, driving factors and proxies of SO effects.</jats:p>
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