Executive stock option repricing, internal governance mechanisms, and management turnover

We examine firms that reprice their executive stock options and find little evidence that repricing reflects managerial entrenchment or ineffective governance. Repricing grants are economically significant, but there is little else unusual about compensation in repricing firms. Repricers tend to be smaller, younger, rapidly growing firms that experience a deep, sudden shock to growth and profitability. They are also more concentrated in the technology, trade, and service sectors and have smaller boards of directors. Repricers have abnormally high CEO turnover rates, which is inconsistent with the entrenchment hypothesis. Over 40% of repricers exclude the CEO's options when they reprice. (C) 2003 Elsevier Science B.V. All rights reserved.