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Latest insights on Human Resource and Workforce related topics in India and articles from HR thought leaders at Aon Hewitt.

Don't fix what isn't broken

16 Jul 2018 by  Dinkar Pawan

The decision to use Stock Options over full value instruments has been fairly intuitive. They reward employees only for incremental value created for the shareholders, tie the interest of the management with those of investors, do not lead to cash outflow and are easy to understand and communicate to employees.

If you are indifferent between two products, you choose the one with a lower price. That's substitution effect. Building on the same argument, if the price of two products is the same and you prefer A over B, then A must be more valuable. Isn't it? Can this basic micro economic theory be applied to Stock-based Compensation?

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Dinkar Pawan