Shareholders' value maximization and stakeholders' interest: Is CEO long-term compensation the answer?

Despite the claimed theoretical superiority of the stakeholder management (SM) approach, in practice this model is still not fully implemented and only recently companies have started addressing some of the key stakeholders’ claims. It has generally been thought that part of the reason is related to the short term financial focus of managers. Hence, widening executives’ horizon through long term incentives may appear as a straightforward solution to the problem. Because compensation is one of the most central incentive mechanisms for managerial behavior, long-term compensation schemes (LTC) have indeed been proposed as an incentive and horizon alignment tool. However, SM has not become the competitive strategic “tool” executives think of to boost a firm’s value. Why then is this not the case? Do LTC, in particular stock option plans, provide executives with the incentive of balancing shareholders’ and other stakeholders’ interests? This chapter tries to address these questions. Notwithstanding the potential benefits of LTC as an incentive alignment, it is argued here that stock option plans may rather fail accomplishing this target