asymmetry of risk, page-4

Coopec,

Options give one form of divergence of interests, wages another.

Options give the incentive to bet the farm on high risk wildcatting. If the wildcat pays off the option holder does very well if not he loses little. The option holders risk/reward is different than the shareholder. The option holder sees no value from dividends.

If you give me some money I will go down the racetrack and bet it for you and give you 90% of the winnings.

It would be better to pay the execs 30% of their salary in shares.


bacci