Performance Regularity: a New Class of Executive Compensation Packages

The ability of standard executive stock options to incite managers to adequately select the assets of their firm has been extensively questioned by academics and practitioners. However, very few alternatives exist or have been proposed to better control the investment strategies of top managers. The present article studies the evaluation and sensitivity of a new class of executive stock options well designed for the control of managers. Such packages are aimed at giving incentives to CEOs to maintain a regular performance over time and a stable volatility level. The importance and implications of the choice of the different parameters as well as their robustness with respect to standard financial criteria are examined. In brief, this article studies in a utility-based framework a new type of executive stock options that can be useful to protect and enhance the economic performance of corporations.