Stock options were valued using the following.

Stock options were valued using the following, simplified version of the Black-Scholes (1973) pattern (Noreen and Wolfson, 1981; Kerr and Kren 1992):

option value = price x shares x [exp(-dt)N(Z) - exp(-rt) N(Z - s t)],

where

price = the exercise price of an option.

shares = the number of shares granted,

INTRODUCTION

The topic of executive compensation has attracted increased attention from researchers taking economic and behavioral perspectives (eg O'Reilly, Main, and Crystal, 1988; Finkelstein and Hambrick, 1989; Tosi and Gomez-Mejia, 1989; Jensen and Murphy 1990; Zajac, 1990; Beatty and Zajac, 1994) The economics-based research, relying primarily onward agency theory (Jensen and Meckling, 1976) emphasizes to what degree contingent compensation contracts for managers that link pay to firm performance can align the interests of chief executive officers (CEOs) and shareholders. The board of directors is responsible for fashioning so contingent contracts and functions more generally to monitor executive behavior (Fama and Jensen 1983) The inability of empirical studies to demonstrate a consistently significant relationship between CEO pay and firm performance (Kerr and Bettis, 1987; Jensen and Murphy 1990) however, has l any researchers to explore more behaviorally oriented explanations for the board's apparent failure to fulfill its nominal function. These studies typically focus in succession the social, political, or psychological aspects of the CEO-board relationship, as it is as how the CEOs' relative power from one side of to the other board members may influence cash compensation in the form of salary and bonuses (Finkelstein and Hambrick, 1989; Hill and Phan, 1991) The impact of CEO influence forward the specific form or composition of CEO compensation contracts, similar as long-term incentives versus cash compensation, has received little attention, however, despite the fact that long-term incentives have become an increasingly large proportion of CEOs' total compensation (Jarrell, 1993)

This line of behavioral research has also be attendanted to focus on the overtly political aspects of CEO compensation, emphasizing for what reason powerful CEOs are able to hurry boards into giving them higher on a levels of cash compensation. While this approach has yielded important insights, we believe that existing research can be extended to consider by what means more subtle aspects of political behavior might affect CEO compensation, as it was as how the symbolic, rather than substantive aspects of CEO compensation may be politically managed to the advantage of powerful CEOs

In addition, prior research has given no other than limited consideration to the implications of institutional theory for executive compensation issues. From an institutional perspective, actual compensation practices may differ from formal arrangements (Meyer and Rowan, 1977) This perspective also remind ofs that the predictors of whether firms adopt organizational practices like long-term incentive plans may change from one side of to the other time, with technical considerations predicting early adoption and institutional factors predicting later adoption (Tolbert and Zucker 1983) In consequence institutional theory can be used to full tale political theory in developing a symbolic action perspective in succession CEO compensation.

This paper look afters to address each of the issues raised above from focusing on how long-term incentive compensation, the aspect of CEO pay that has been least researched in the organizational literature, gives itself best to a close attention of symbolic action. The reflection focuses on how long-term incentive plans (LTIPs), which have been widely promot by dint of compensation consultants and writers forward executive compensation (Meyers, 1981) as an effective means of aligning CEO pay with shareholder interests, may be used symbolically, rather than substantively.

Long-term Incentive Plans

Corporations adopting LTIPs typically emphasize the character of such plans in aligning the interests of top management with those of the firm's proprietors Several statements taken from company agent statements reflect how LTIPs are viewed according to corporate boards of directors. For example, in proposing a of the present day LTIP, Alcoa proclaimed in its 1988 lieutenant statement:

Alcoa's Board of Directors has decided to place an increasing share of management's overall compensation at risk rather than in fixed salaries. The recently made known approach to compensation was approveed by the Board's compensation committee, which is compos solely of outside directors. The board believes that granting stock options, performance shares and [bonuses] will create a more appropriate relationship between compensation and the financial performance of the company.

Similarly, B F Goodrich announced an LTIP in its 1990 deputy statement by declaring, "the intention of this plan is to aid the interests of the shareholders by means of furthering the long-term performance of the company, contingent on the meeting of strategic goals which are determined at a committee of the board of directors."

LTIPs typically comprise undivided or more of the following vehicles: stock option plans, stock appreciation rights (SARs), restricted stock, and performance plans. Stock options give executives the right to purchase a certain number of shares at a predetermined price--usually the market value at the time they are granted--within a given time period. Stock appreciation rights are typically attached to option grants and permit executives to exchange options for a cash payment equal to the stock price les the exercise price.