The Determinants of Shareholder Voting on Stock Option Plans

79 Pages Posted: 24 Feb 2000

See all articles by Kenneth J. Martin

Kenneth J. Martin

New Mexico State University - Department of Finance & Business Law

Randall S. Thomas

Vanderbilt University - Law School; European Corporate Governance Institute (ECGI)

Date Written: November 30, 1999


Over the past decade, executive compensation has become a controversial topic. Increasingly, corporate boards of directors are confronted by angry shareholder groups over the size and composition of executive pay packages. One of the most important focal points for these tensions arises when shareholders are asked by the board to approve the creation of new stock option plans, or the amendment of existing plans. This article seeks to identify the factors that lead shareholders to support or oppose stock option plans. We examine the justifications for the widespread use of stock options and identify several benefits from stock option plans as well as some of the criticisms leveled against the methods that boards have used to implement the plans.

In addition, we conduct an empirical analysis of the determinants of shareholder voting on stock option plans in the 1998 proxy season. We examine the four companies in our sample in which shareholders defeated the plans and then perform a cross-sectional analysis of voting results on the entire sample of 637 proposals. Our principal finding is that while shareholders generally vote to approve stock option plans, shareholders are particularly sensitive to the potential dilution caused by the plans, whether that dilution is in terms of total company dilution or individual plan dilution. In addition, we find that several characteristics of the plans, such as option repricing, payments in restricted stock, and the provision of loans to executives for the purchase of shares appear to be the most significant factors leading to increased shareholder opposition.

JEL Classification: G30, J30, J33, K22

Suggested Citation

Martin, Kenneth J. and Thomas, Randall S., The Determinants of Shareholder Voting on Stock Option Plans (November 30, 1999). Wake Forest Law Review, Vol. 35, p. 31, 2000, Vanderbilt Law, Joe C. Davis Research Paper No. 22, Available at SSRN: or

Kenneth J. Martin

New Mexico State University - Department of Finance & Business Law ( email )

College of Business Administration & Economics
Las Cruces, NM 88003
United States
505-646-3201 (Phone)
505-646-2820 (Fax)

Randall S. Thomas (Contact Author)

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics