Critically evaluate the use of share option to align directors' interests with shareholders' interests.

Introduction

Enthusiasts have long argued that sh atomic number 18 option schemes provide circumspection with a powerful motivation tool. Stock ownership aligns employee and shargonowner interests will strengthening employee levels of commitment. In an increasingly competitive art environment, options are a way to attract and retain discover employees such as managing director or Chief executive officer (COE). According to Whittker, employee must act and behave as genuine shareholders to equate investor and shareholder interests (Hayward, 2001, p. 8). This essay firstly discusses the arbitrariness of share option, explain how share options align manager and shareholders interest, and eventually confer possible problems with share options.

What is share option?

According to Ross et al option is a abbreviate that gives its owner the right to purchase or sell some asset at set impairment on or before a addicted date. Options are a unique type of financial contract because they give the vendee the right, but not the obligation, to do something. The secureer uses the option only if it is profitable to do so; otherwise the option can be thrown away (Ross, Thompson, Christensen, Westerfield &type A; Jordan, 2001, p. 687). The asset involved in an option could be anything. The options that are most widely bought and sold are share options. These are options to buy and sell shares.



A company option is a corporate security that gives the holder the right, but not obligation, to buy shares directly from a company at a decided price for a given period. Each company options declare the number of shares that the holder can buy; the exercise price and the expiration date. Company options usually have much long-life maturity periods (Ross et all p. 711).

Share option aligns manager and shareholder interest

As to the self-assurance theory, individuals are rational and maximize their utility (Wong, 1988,

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