A study published in the Academy of Management Journal shows no correlation between a company's performance and the amount of stock or options owned by its corporate executives.
The research, led by four professors from Indiana University and Texas A&M, looked back over 229 similar studies from 1971 to 2001. They found that compensation designed to motivate executives had no effect on such things as return on assets or stock price performance.
While the researchers did not mention specific companies, USA Today did when reporting on the study. The paper ran its own analysis of Fortune 1,000 companies in search of a connection between insider stock holdings and return on equity (ROE, a common measure of a business' performance), and found little or no correlation. Instead, dozens of companies underperformed the competition "despite their CEOs being laden with stock and options."
Though USA Today didn't say, there are surely examples of good performance from options-laden CEOs. And Indiana University's Catherine Daily, who headed the AMJ study, emphasized that while awarding executives with such motivational compensation may not help performance, it certainly doesn't hurt it. When asked if her study suggested executive compensation should be reduced, she told the paper, "That goes well beyond what I can speculate."
The best suggestion in the article came from Nell Minow, editor of The Corporate Library, which specializes in corporate governance research. Minow believes executives are better motivated if they have a stake in their company's stock performance. However, she says options should be indexed so a CEO is not rewarded for a general rise in the market, nor punished for a general market sell-off.