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The Nasty Truth about CEO Pay

Harvard Business Review

Black-Scholes Valuation based on stock price at issue. Black-Scholes Valuation based on stock price at issue. So after a precipitous drop, Tom has led his company back to within 6% of the 2007 starting point. Most public company CEOs could tell a similar tale. Tom's Compensation. Option Model. Stock Price. Number of DSUs.

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Radical Recovery Tools

Strategy Driven

Each issue is packed with thought-provoking content and insight into the business issues that affect all companies competing in today’s technology-driven marketplace with recent contributions by best-selling author and researcher Tom Davenport; social media guru Chris Brogan; and Myron Scholes, world renowned economist and Nobel Prize winner.

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Big Data's Human Component

Harvard Business Review

Any fool, or mortgage banker, can use a spreadsheet and calculate a Black-Scholes equation. From the day their firm, O'Connor & Associates , opened its doors in 1977, derivatives were treated as if they were radioactive — you weren't allowed near them without a hazmat suite and at least one PhD in mathematics.

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The Comparing Trap

Harvard Business Review

He and two other economists created the trading process called Black-Scholes that impacted the ways financial markets were informed and influenced. Two years earlier, in the mid-nineties, an MIT professor had joined the Harvard Business School faculty and one year later won the Nobel Prize in economics. You see the problem.

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Stop Trying to Predict Which New Products Will Succeed

Harvard Business Review

Though there are multiple types of prediction, the gold standard is the prediction of precise outcomes.

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If the SEC Measured CEO Pay Packages Properly, They Would Look Even More Outrageous

Harvard Business Review

In the case of stock options, the EFV formula is typically a Black-Scholes-Merton option-pricing model that, rooted in the “efficient markets hypothesis,” assumes that changes in a company’s stock-price exhibit a log-normal distribution and thus predicts that most stock-price changes will be very small.

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What an Economist Brings to a Business Strategy

Harvard Business Review

Even more directly, the growth in financial options can be traced largely to the ease of valuing them, which is due to the Nobel-prize winning work of Fischer Black (the MIT economist and later Goldman Sachs partner who died before he certainly would have shared in the award), Myron Scholes (formerly of Stanford) and MIT’s Robert Merton.