Traditional executive stock option plans allow fixed numbers of options to vest peri-odically, independent of stock price performance.

Because such options may climb deep in-the-money long before the manager can exercise them, they can exacerbate risk aversion in project selection. Making the proportion of options that vest a gradually increasing function of the stock price can ensure that appropriate numbers of options are retained while they provide risk-taking incentives, but are exercised once they have lost their convexity.

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Hughes Optioneering

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Executive Stock Options: Early Exercise Provisions and Risk-taking Incentives by Neil Brisley :: SSRN

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Executive Stock Options: Early Exercise Provisions and Risk-taking Incentives

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