We examine how granting non-dividend protected executive options affects payout policy during the period 2001–2008. Using a difference-in-difference estimation along with the introduction of SFAS 123R, we find that firms with non-optioned executives increase dividends more than firms with optioned executives, post- versus pre-SFAS 123R. Our result questions whether non-dividend protected executive options are an impediment to paying dividends. Our result is robust pre-SFAS 123R dividends, consistent and inconsistent dividend payers and firms dropping options completely post-SFAS 123R, as well as controlling for endogeneity. Our evidence suggests that expensing of options has no effect on dividend policy.

This paper investigates whether CEO pay disparity reflects efficient contracting or managerial power by exploiting a quasi-natural experiment which mandated option expensing, FASB ASC 718. We find supportive evidence for the managerial power hypothesis. Relative to low pay disparity firms, firms characterized by high pay disparity exhibit a significantly larger decline in options pre- versus post-expensing. Further, high pay disparity firms are found to replenish their compensation with cash-based rather than other equity-based pay. Our findings suggest CEOs in high pay disparity firms exploited the free accounting cost of options to inflate their pay rather than for their incentive properties.

In this paper, we analyze the role of hiring a reputable compensation consultant for firms wanting to secure affirmative Say on Pay (SoP) votes. We provide evidence that reputation influences shareholders voting behavior positively when CEO pay is excessive and when peer CEOs are paid less. We employ two methods to account for endogeneity, instrumental variables as well as examining firms switching up to more reputable compensation consultants. Our results are robust with respect to CEO pay and complexity as well as fees and alternate measures of reputation. Firms concerned with the negative feedback associated with negative SoP votes should factor reputation in their decision to hire consultants, especially if trying to adopt compensation packages that may appear excessive.

This paper investigates whether employee stock option proceeds, both executive and non-executive are employed by firms to finance investment by exploiting a quasi-natural experiment which mandated option expensing, SFAS 123R. We find that despite a fall in both executive and non-executive option grants and proceeds, investment has increased post-SFAS 123R. The investment's sensitivity to option proceeds remains constant or even decreases for non-executive option proceeds post-SFAS 123R implying that option proceeds are not an integral source of finance. Our results are not driven by the recent financial crisis as well as the changes in corporate governance and financial constraints over the sample period.