Business Case Studies & Business Publications

The Option Dilemma: Designing Executive ...

Sun, Bo

Case

The Option Dilemma: Designing Executive Compensation Across Industries

Sun, Bo

GEM-0242 | Published July 14, 2025 | 9 Pages Case

Collection: Darden School of Business

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Consultant Sarah Chen is tasked with offering suggestions about designing executive compensation for two clients with vastly different risk profiles: Nova Technologies, a high-growth AI company, and Atlantic Financial, a regional bank. Using Tesla's radical $56 billion all-options compensation package for Elon Musk as a backdrop, the case explores how the same compensation tool can have dramatically different implications across industry contexts. Students must grapple with how the time structure of risks and rewards shapes appropriate incentive design.

The case helps students understand the mechanics and implications of option-based compensation, the relationship between compensation structure and risk-taking behavior, and how industry context shapes appropriate incentive design.