Indexed stock options tie an executive's rewards to market indexes rather than just share price, ensuring rewards are only given for outperformance rather than rising markets alone. This can motivate executives not just in bull markets but also downturns by appropriately rewarding superior performers and penalizing underperformers. Companies should set performance standards and incentive schemes at all levels to maximize shareholder value added and total returns, with CEO pay tied to indexes, unit executives to SVA, and other employees to leading indicators of value creation. Reforming compensation practices in this way strengthens the link between pay and superior performance shareholders desire.

1. Submitted By :- Ayush Arzare
Submitted To :- Ms. Suchi mody

2.  stock options with options that are tied to a
particular market.

3.  Fixed-price options reward executives for any increase in
share price, even if the increase is well below that realized by
competitors or by the market as a whole.
 Because the exercise prices remain fixed, premium-priced
options hold no guarantee that the level of performance will
be superior. During a period of rising markets, premium-
priced options may still reward below-average performance.
They also offer little or no reward to executives who
outperform their competitors during times of modestly
rising or declining markets.

4.  By tying a plan's exercise price to a selected index;
boards can increase the pay of superior performers
while appropriately penalizing poor ones
 Indexed options do not reward underperforming
executives simply because the market is rising. Nor
do they penalize superior performers because the
market is declining. They can keep executives
motivated not only in the bull markets everyone has
grown accustomed to but also in sustained bear
markets.

5.  Operating managers need to identify and focus on
activities that maximize SVA and reduce costly
investment in resources that contribute little to
actual value.
 Achieving superior returns is the ultimate goal for
shareholders. It is, therefore, the only appropriate
target for the CEO, the board, and corporate-level
executives. Companies with superior performance
standards in place at all levels send a powerful
message to shareholders about their aspirations.

6.  PEOPLE MEASURE LEVEL
CEO and Total returns Exceed peer or
corporate level to shareholders market index
executives
Operating unit Shareholder Exceed investor
executives value added expectations
Frontline employees Leading indicators Support achievement
and managers of value of superior share
holder value added

7.  The concept of pay for performance is widely accepted, but
the link between incentive pay and superior performance is
still too weak.
 Boards of directors need to push through changes in
executive compensation practices, including their own pay
schemes. And reforms must be adopted at all levels of the
organization.
 If indexed options are introduced for CEOs, then Shareholder
Value Added (SVA) based measures should be introduced in
business units.
 Shareholders will applaud changes in pay schemes that
motivate companies to deliver more value.