Stock-based compensation and agency problem
In the United States, the stock-based compensation, including the stock option which is the right to purchase the pre-specified number of the own company's shares at a pre-specified price, has been increasing dramatically in terms of the share of the total compensation package of the CEOs and other senior management since the mid-1990s.
(1) If you were a CEO, how do you convince your shareholders to approve such a compensation system? If you were a shareholder of the company, what would be your major concerns?
(2) What would be the potential implication of Variable costs are estimated to be $200 per unit, such a compensation system to the pay-out policy?