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In theory, stock options should motivate executives to perform better - but in practice, they haven't always had that effect. Why?

In theory, stock options should motivate executives to perform better by tying their pay to their company's performance. So why do some argue the practice has just become a way for the highest earners to boost their salaries even further? Tim Harford turns to ancient Greek philosophy and Bill Clinton's presidency in search of the answer.

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A clerk studies his record of securties bought and sold in the basement of Manchester's stock exchange (Credit: Hulton-Deutsch Collection/CORBIS/Corbis via Getty Images)

Sources

Clinton Campaign Speech - C-Span

Planet Money - The Economy Explained: When CEO pay exploded - npr

CEO compensation surged in 2017 - Lawrence Mishel and Jessica Schieder, August 16, 2018, Economic Policy Institure, Washington DC

Aristotle's Politics, Book 1

Derivatives for Decision Makers: Strategic Management Issues - George Crawford and Bidyut Sen, 1996, Wiley and Sons

Robert Reich - There's One Big Unfinished Promise By Bill Clinton that Hillary Should Put to Bed

Research Handbook on Securities Regulation in the United States - Jerry W. Markham, Rigers Giyshi, 2014, Edward Elgar Publishing

The Trouble with Stock Options - Brian J. Hall and Kevin J. Murphy, June 2003, NBER Working Paper No. 9784

Pay Without Performance: The Unfulfilled Promise of Executive Compensation, 2003. Lucian A. Bebchuk, Jesse M. Fried

John M. Olin Center for Law, Economics and Business Discussion Paper Series, Paper 528

The Impact of Ownership Structure on CEO Compensation: Evidence from the UK, Master Thesis, 2016-17, Radboud University, Nijmegen Faculty of Management

Are CEOs Rewarded for Luck? The Ones Without Principals Are - Marianne Bertrand, Sendhil Mullainathan - The Quarterly Journal of Economics

The Most Overpaid CEOs: Are Fund Managers Asleep at The Wheel? - Rosanna Landis Weaver, Harvard Law School Forum on Corporate Governance and Financial Regulation

It takes a CEO just days to earn your annual wage - BBC

CEO Talent: A Dime a Dozen, or Worth its Weight in Gold - Nicholas E. Donatiello, David F. Larcker, Brian Tayan, Stanford Business

If the CEO's High Salary Isn't Justified to Employees, Firm Performance May Suffer - Harvard Business School

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