<Li> Not adjusting for windfall gains for the firm unrelated to management's own efforts (falling interest rates, market and sector - wide share price movements, etc .) or for how the company performed relative to "peer companies". </Li> <P> Following the housing bubble collapse, critics have also complained that stock options have "turned out to be incredible engines of risk - taking" since they offer "little downside if you bet wrong, but huge upside if you roll your number ." An example being options given in compensation to buy shares of stock in the CEO's company for $100 when the price is currently $80 . Given a choice between a high risk plan that has equal chance of driving the company's share price up to $120 or down to $30, or a safe path likely to cause a more modest rise in share price to $100, the CEO has much more incentive to take the risky route since their options are just as worthless with a modest increase (to $100 / share or less) than as with a catastrophic fall in price . </P> <P> Executive's access to insider information affecting stock prices can be used in the timing of both the granting of options and sale of equities after the options are exercised . Studies of the timing of option grants to executives have found "a systematic connection" between when the option were granted and corporate disclosures to the public . That is, they found options are more likely to be granted after companies release bad news or just before they "release good news" when company insiders are likely to know the options will be most profitable because the stock price is relatively low . Repricing of stock options also frequently occurs after the release of bad news or just prior to the release of good news . </P> <P> Executives have also benefited from particularly auspicious timing of selling of equities, according to a number of studies, which found members of corporate upper management to have made "considerable abnormal profits" (i.e. higher than market returns). (Since executives have access to insider information on the best time to sell, this may seem in violation of SEC regulations on insider trading . It is not, however, if the insider knowledge used to time a sale is made up of many pieces and not just a single piece of "material" inside data . But even if there is material knowledge, the SEC enforcement is limited to those cases easily won by its relatively small budget .) </P>

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