Stock-options and Long-term-incentive Programs: A Legal Analysis of the Amendment of the Danish Stock Option Act and Taxation Rules with Financial Perspective to Motivational Theory, Principal-agent Theory and Share Reacquisitions

Alexander Hilton & Lucas Glargaard

Student thesis: Master thesis


This thesis analyzes whether stock-options, warrants and other long-term-incentive programs are a useful tool for Danish companies to remunerate their employees instead of paying high salaries. We will analyze the employment and taxation related challenges that companies are facing when offering their employees stock options and warrants. Furthermore, we will discuss the impact of the new Danish Stock Option Act which took force on January 1st 2019. After a short comparison to foreign law we will discuss how the enforcement of the Shareholder Rights Directive will have an impact on the level of transparency for the companies. The last part of the legal analysis discusses how share reacquisitions is handled as this topic is a big part of the financial analysis. The thesis analyzes the motivational behavior and psychological aspect of how employees are thinking and want to be rewarded. Next, the financial analysis will discuss the accounting rules and how the liquidity and cash flows can be affected by offering stock-options and warrants. The accounting rules will include pricing methods of how to calculate the valuation of a stockoption or warrant as we will go through the Black-Scholes formula, Minimum Value Approach and The Binomial Model to discuss the differences between the valuation methods. After this, we will discuss the principal-agent theory and how stock-options and warrants can affect the different parties by minimizing moral hazard challenges and optimizing decision-making abilities. These findings will bring us to the share reacquisitions part where we will discuss how this financial tool will help optimizing the capital structure of the company. The integrated analysis will discuss the most important factors when designing the most efficient incentive-program. This will be followed-up by some game theory where we have developed a simultaneous and sequential game trying to be able to predict the parties behavior in order to determine the most efficient incentive-program. The legal and financial analysis will be used as the foundation to determine a legal change in the Danish Tax Assessment Act.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
Publication date2019
Number of pages101