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Patterns of stock option exercise in the United States

Steven Huddart

This paper considers employee Exercise behavior from three perspectives. First, Employee stock options (ESOs) are distinguished from "traded stock options" (TSOs) and certain valuation considerations peculiar to employee stock options are reviewed. Then employee exercise behavior at a small sample of companies is summarized and related to the valuation issues. Finally, the impact of taxation on employee exercise decisions and some tax planning opportunities afforded by options are detailed.

Chapter 8 in Executive Compensation and Shareholder Value, Jennifer Carpenter and David Yermack, editors, (Norwell, MA.: Kluwer Academic Publishers, 1998) 115-142.

New York University Salomon Center Series on Financial Markets and Institutions

Keywords: compensation, incentive, ISO, non-qualified, NQO, taxation, risk aversion.

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Steven Huddart
Smeal College of Business, Penn State University, University Park, PA 16802-3603 USA
(814) 863-0048
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