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Tax Constraints On Indexed Options, David M. Schizer
Tax Constraints On Indexed Options, David M. Schizer
Faculty Scholarship
Indexed stock option grants reward executives for outperforming a benchmark, such as the market as a whole or competitors in the same industry. These options offer superior incentives by limiting the influence of factors beyond an executive's control, such as general market and industry conditions. Yet indexed options are almost never used. Professor Saul Levmore seeks to explain this puzzle with norms. This comment on his article argues that tax plays a larger role in this puzzle than he acknowledges, although tax is not a complete explanation. Accounting and Professor Levmore's norms-based account are then briefly considered.