Incentives and Organization
Bristol Myers Squibb is a global manufacturer of pharmaceutical and related healthcare products. Its top selling drugs are Plavix and Pravachol tablets. In March 2005 the company awarded CEO Peter Dolan 125,000 options to buy Bristol Myers Squibb common shares at an exercise price of $25.29.
a) Explain how the stock options were intended to motivate Mr. Dolan.
b) Suggest an incentive scheme based on relative performance and compare it with the Bristol Myers Squibb stock option scheme.
c) Mr. Dolan also received a salary and bonus from Bristol Myers Squibb. How would stock options affect the risk that he bore?
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