Consider the fair value of the following 50:50 bets for stock currently at $50 to someone with options to buy stock at $48, maturing sometime in the next three months (values times 0.5 chance of occurring):
$48:$52, incremental value -$1+$1=+$0 $40:$60, incremental value -$1+$5=+$4 $30:$70, incremental value -$1+$10=+$9 ... and so on.
If the stock option is out of the money, it only makes the incentive to pursue bigger win / bigger loss bets stronger.
Of course if the stock price goes down, someone holding the stock does not recover until it returns to its original level.
By contrast, someone paid in short term stock options will have the stock options issued relative to current market price, so if last quarter they lost, they restart at a lower level and continue gambling from there.
Payment in short maturity stock options involves substantially higher moral hazard than payment in stock or in long maturity options. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
If you want to have bonuses for corporate officers, you could just give them an extra sack of cash. If they believe in the company they can use that money to buy shares, or even options, in it.
Alternatively one could issue shares to them, which would be held in an escrow account for 5-10 years after which they can be sold. Peak oil is not an energy crisis. It is a liquid fuel crisis.
