Stock Options as a System of Reward:Theory and Evidence

Employee stock option plans (stock options) have received increased attention in recent years both in India and abroad. Many organizations around the world have offered these stock options to their employees-managerial and non-managerial. The present paper outlines the concepts of profit sharing and ESOPs and gives the theoretical foundations of why these stock options are paid. Some empirical evidence on the success of stock option plans has been summarized which tells us that though the evidence is mixed on the significance, but there is a positive interrelationship between the adoption of these plans and the enhancement in productivity and employment stability. The main features of the current Indian scenario have also been highlighted. The paper traces the recent developments related to stock options and the reasons for the emergence of alternative incentive plans. A survey of these alternatives has also been presented.