The economic determinants of CEO stock option compensation

The aim of this paper is to examine the economic determinants of CEO stock option compensation. In particular, employing a Tobit model, we investigate the determinants of the mix (i.e. the ratio of annual CEO stock option awards value to cash compensation) as well as the incentive intensity (i.e. the pay-performance sensitivity) of stock option awards in a Canadian sample of large publicly traded firms over the period 2001-2004. Considering stock option mix as the dependent variable, we document a positive relation for growth opportunities and firm size, a negative relation for leverage, CEO age, CEO stock ownership and blockholder ownership, and a concave relation for non-systematic risk. When stock option incentive intensity is used as the dependent variable, we find a positive relation for relative noise in the accounting performance measure, a negative relation for CEO stock ownership and blockholder ownership, and a concave relation for firm specific risk.