Replacing executive stock options with share units: A Canadian study

In: Canadian journal of administrative sciences: Revue canadienne des sciences de l'administration, Volume 40, Issue 1, p. 98-118

Abstract

AbstractAre share units a better compensation tool than stock options? This paper studies the impact of a transition within the compensation structures of CEOs of companies listed on the TSX Composite Index. Specifically, we ask whether replacing options with units‐based compensation reduces the volatility of these companies' stock prices while promoting better returns. Our findings show that a shift to share units reduces large‐cap Canadian companies' total risk through its idiosyncratic component. This transition is also accompanied by an increase in their risk‐adjusted accounting and market performance. This suggests that share units are better for compensation contracts.