The Optimal Repricing Scheme Of Executive Stock Options

When the price of stock oriented by the executive stock options declines deeply, the incentive mechanism will weaken or almost lose all the incentive effect, then the company will run the risk of losing human resource. To persuade the human resource to stay in the company and work harder, the company will consider repricing the executive stock options, or promise the possible repricing.This paper will assume that there are effective stock market and effective executive market, and the basic hypothesises in Black-Scholes Stock Options Pricing Model are correct. We will discuss the optimal repricing scheme under three situations, one is that the board of the company considers repricing when the price declines straightly ; the second is at the beginning of stock life,the board promises to reprice under some conditions at a certain coming time; the third is when some condition happens at an uncertain coming time, the board promises to reprice the ESO.The company considers three repricing schemes(namely is higher, equal to or lower than the price at the repricing time) through Equal-Value-Exchange option repricing approach. For each scheme, the executive has his own action, retaining in the company or leaving it to the effective executive market to earn his average value. For this process, we will contribute a two people, not cooperative, complete information, dynamical game frame. We consider executive value calculated with certain-equal-value approach as executives'effective function, and the incentive effect as the company's effective function. We will look for from the company's viewpoint the optimal scheme under the same options financial cost, and look for the fining Nash balance for these game frames under different conditions. Finally we find a road for the company to reprice.