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This solution is prepared by Group # _________________

MGST 451 – Fall 2018

Case # 2 Solution (17 pages)
Equity on Demand:
The Netflix Approach to Compensation
Stanford Graduate School of Business Case CG-19
L01, L02, L03: Due on Monday November 19,
2018 at the start of your registered lecture
L04, L05, L06: Due on Tuesday November 20,
2018 at the start of your registered lecture
One paper copy of this solution per group is all that is required. Please make
certain that you alligator clip the pages together and print all 17 pages of this
document.

Point form answers are fine as long as the point conveys a complete thought
and is logical! Please answer (in the space provided) the six questions posed on
page 12 of the case. Question # 4 should read. “Given your answers to
questions 2 and 3…” Only answers in the space provided on this form will be
graded! Please do not change the font, nor expand the allotted size for each
questions’ answers or change the total number of pages in this document.

Please do NOT expand or contract the space provided for each question and
please print your solution SINGLE SIDED (10 marks will be deducted for
double-sided or back-to-back solutions).

MGST 451: Case # 2 Solution – Fall 2018 Page 1

The space below is for your Executive Summary (12 marks). If typed, you must use at least
12 point font.

Problem Definition (2 marks):

What type of compensation program will allow Netflix to provide the best value for its
employees while keeping in line with its own corporate values? Furthermore, how can Netflix
ensure it is retaining and motivating its top-level employees?

Conclusion/Recommendation (3 marks):
Netflix provides value to its employees by giving them the option of receiving both cash and
stock options for their compensation. This is in line with its corporate values of “freedom and
responsibility” as it reflects the culture of high -performance by encouraging its employees to
work harder in order to have more flexibility in how they receive their compensation. Netflix’s
strategy also ensures retention of its best employees by offering competitive wages and
flexibility in the employee’s compensation mix.

Relevant Facts (3 marks):

 Compensation mix is up to the employee’s discretion and the employee can choose a mix
that suits their needs
 Netflix’s corporate culture is about “freedom and responsibility”
 Netflix pays top-of-market wages to attract and retain outstanding employees
 In hiring, Netflix targets high-performing employees that produce “A-level results” and
can do the work of 2-3 employees
 Employees with high job-satisfaction with higher wages were more likely to participate
in the compensation program
 Netflix’s average annual voluntary employee turnover is 10-13%

Analysis/Summary: (4 marks)
Netflix’s business model focuses on attracting and retaining top-level employees, providing
flexibility and autonomy to its employees, and motivating its employees by giving them the
option to participate in the company’s success. By offering its employees high levels of
compensation in terms of both cash and stock options, Netflix is able to retain its top-level
employees while attracting new employees. At Netflix, employees are given the freedom and
flexibility to choose a compensation mix that best suits their needs. This supports Netflix’s
culture of innovation and flexibility. Netflix motivates the employees that choose stock options
since those employees have a vested interest in Netflix’s performance in the stock market.
Netflix’s annual voluntary employee turnover is less than the industry average, meaning that it is
successful in retaining its top-level employees when compared to its competitors in the industry.

MGST 451: Case # 2 Solution – Fall 2018 Page 2

Question 1: worth 16 marks so please state at least 8 valid points (2 marks
each):

Statement Point Form Statements and logic:

#
Q1.1. Describe a key feature of Netflix’s compensation program
A key feature is that they allow employees to request own personal compensation mix. The
employees get an amount that they can allocate between a base salary and stock options that fit
them best. At the end of the year employees can change how they want their allocation to be for
the next year, but they cannot change their compensation mix during the year. An employee can
allocate up to a maximum of 60% of their compensation to stock options.

Q1.2. Is 1.1 consistent with Netflix’s culture, strategy, business model

It is consistent in terms of culture because it aligns with Netflix’s culture of freedom and
responsibility. Employees have the freedom to choose their own compensation mix that tailors to
their own needs, and employees have the responsibility to be top-performers in order to remain
working at Netflix and continue to receive top-level compensation.
It is consistent in terms of strategy because it promotes Netflix’s vision of long-term growth.
Instead of putting all of its efforts in hiring the best employees it can find, Netflix focuses on
retaining its high-performing employees by giving them competitive compensation.
It is consistent with Netflix’s business model of innovation and responsibility because Netflix’s
compensation style awards employees based on performance instead of the amount of time and
effort put into their jobs.

Q1.3. Describe a key feature of Netflix’s compensation program

Netflix doesn’t annually raise employees’ wages unlike other companies that offer merit-based
increase or cost of living adjustment. Instead, Netflix changes the employee’s salary after taking
into consideration recent market data on compensation. In addition, Netflix looks at employee’s
performance and if necessary, they adjust the salary to reflect current conditions.

MGST 451: Case # 2 Solution – Fall 2018 Page 3

Question 1: worth 16 marks so please state at least 8 valid points (2 marks
each): continued

Statement Point Form Statements and logic:

#
Q1.4. Is 1.3 consistent with Netflix’s culture, strategy, business model
This aligns with Netflix’s standard of paying its employees a compensation that is above market
rates. If the employee had more responsibilities and performed well they would be compensated
for that and it would be a higher compensation than if they were to work somewhere else. In
addition, it is consistent with Netflix’s goal of retaining only top performers.

Q1.5. Describe a key feature of Netflix’s compensation program

If an employee quits or is fired, the employee can hold onto his/her unexercised options for the
remainder of the 10 year period. This means that Netflix does not penalize its employees for
choosing to receive stock options as part of their compensation even if they choose or are forced
to leave the company.

Q1.6. Is 1.5 consistent with Netflix’s culture, strategy, business model

It is consistent with Netflix’s culture since it promotes the employee’s freedom by giving them
the option to quit without adding the stress of taking away their unexercised options.
It is consistent with Netflix’s strategy since it ensures that Netflix retains the employees that are
at Netflix because they want to be at Netflix. This prevents the possibility of having unmotivated
employees who are only at Netflix due to their fear of losing their unexercised stock options.
It is consistent with Netflix business model since it ensures that Netflix stays competitive in
terms of adding value to its employee’s choices. It adds value by giving its employees the
freedom to leave or remain at the company without fear of losing their unexercised stock
options.

MGST 451: Case # 2 Solution – Fall 2018 Page 4

Question 1: worth 16 marks so please state at least 8 valid points (2 marks
each): continued

Statement Point Form Statements and logic:

#
Q1.7. Describe a key feature of Netflix’s compensation program
Option grants are made monthly and there are no vesting restrictions as stock options are vested
immediately and can be exercised at the date of the grant. This means that employees do not
have to wait to exercise the stock options that they receive as part of their compensation mix.

Q1.8. Is 1.7 consistent with Netflix’s culture, strategy, business model

It is consistent with Netflix’s culture since it ensures that the people that stay at Netflix are those
that want to stay with Netflix. Netflix found that those that don’t care about the company only
stay at the company until their options can be vested.
It is consistent with Netflix’s strategy of retaining top-level performers since removing vesting
restrictions makes it easier for Netflix to fire/remove underperforming employees, allowing them
to only focus on the top-level performers.
It is consistent with Netflix’s business model since it ensures that Netflix retains competitive
employees by removing the possibility of having unmotivated employees who are only waiting
for the vesting period of their stock options to end before they leave the company.

MGST 451: Case # 2 Solution – Fall 2018 Page 5

Question 2: worth 18 marks so please state at least 6 valid points (3 marks
each):

Statement Point Form Statements and logic:

#
Q2.1. Define what efficiency is
An economic state in which resources are allocated in a way that optimize the benefits of each
individual in the group. While at peak economic efficiency, the welfare of an individual cannot
be improved without jeopardizing the other party’s welfare (Investopedia LLC., 2018).

Q2.2. State metrics that could be used to measure efficiency

 Employment rate and overall (both voluntary and involuntary) turnover to measure how
well a firm can capture and retain high performing employees;
 The future stock price of the firm compares to other tech companies in the market, which
directly determines the profitability for employees who participate in the stock option
compensation program;
 Allocative efficiency can be measured by equating the profitability of executing the
compensation program with the marginal cost of implementing the program (Kalirajan,
1990);

Q2.3. More efficient than the standard model

 Employees can exercise their stock options immediately without any vesting restrictions,
which made it easier for managers to terminate underperforming employees, while
reserving their potential profit from forfeiting the options.
 Stock options offer a tax flexibility for employees upon their choice of exercising the
options at any time within the 10-year time window (Parrish, 2013).

MGST 451: Case # 2 Solution – Fall 2018 Page 6

Question 2: worth 18 marks so please state at least 6 valid points (3 marks
each); 3 reason for more efficient and 3 reasons for less efficient: continued

Statement Point Form Statements and logic:

#
Q2.4. more efficient than the standard model
 Salary is adjusted based on the most recent market data on compensation and job
responsibilities instead of the traditional merit-based increase to ensure employees are
being well compensated compared to the market.
 By giving employees the freedom to choose their own compensation mix, it maximizes
employee satisfaction since they know what is best for them and how to maximize their
profit with the resources (salary) given.

Q2.5. Less efficient than the standard model

 Employees might engage in highly risky investment on behalf of the firm to maximize
the value of the firm’s stock price (if they choose to be compensated partially by stock
options).
 Employees with longer tenure, lower salaries, or risk averse are less likely to participate
in the stock option program which in theory, do not contribute to the economic efficiency
of maximizing profit since the option is at-the-money, by not participating at all in stocks,
they lose any opportunities of earning extra profit.
 Employees are only allowed to evaluate how they want to receive their compensation mix
once a year. This raises problems for employees who are indecisive about how they want
to be compensated as they will have to wait up to a maximum of 1 year before they can
change their compensation mix.

Q2.6. Less efficient than the standard model

Since the compensation mix is customizable to every employee in the company without much
restrictions, it adds complexity for Netflix to account for the granting of the stock options since,
from an accounting perspective, it needs to record the value of the granted stock options which
would differ depending on the how its employees choose to receive their compensation mix
(Parrish, 2013).

MGST 451: Case # 2 Solution – Fall 2018 Page 7

Question 3: worth 24 marks so please state at least 8 valid points (3 marks
each); 2 statements for each part a) to d):

Statement # Point Form Statements and logic:

Q3a: Statement 1: Economic Factors
Amount of salary earned by employees: if earnings are more than enough to cover expenses,
employees have more flexibility to allocate their salary to stock options
Economical sense and marginal gains: Is the value of a package with more salary than equity
equal to the value of a package with more equity than salary? (Pratini, 2018)

Q3a: Statement 2: Behavioral Factors

Personal plan and requirement of stability: Does the employee see themselves staying with
the company long term? Is the employee planning a big move/life change that will require liquid
assets? Does the employee have children/other obligations? (Felix, 2018)
Personal belief in company success: Employees will be more likely to participate in equity if
they are excited about the company and believe it will be prosperous in the long run. (Felix,
2018)
Degree of Optimism Bias and Locus of Control: People generally believe that they are less
likely than others to receive negative outcomes, and they may feel that their actions at work will
affect the share price (Felix, 2018).

Q3b: Statement 1: Economic Factors

A demographic variable that influences this decision is gender. There is a wide wealth gap
between what women make on average and what men make on average. Since stock options are
the “most lucrative currency on the planet”, this influences women to be more likely to
participate in receiving part of their compensation mix in stocks. At other tech companies,
women do not partake in equity programs and are discriminated against by powerful men in the
tech industry. Women at Netflix are able to take advantage of the equity program that Netflix
offers since they have the freedom to choose how they want to be compensated thanks to the
flexibility Netflix provides (Guynn, 2018). Women also tend to participate more in long-term
investment and invest their income to prepare for their retirement plans. Women have a stronger
belief in the value of savings (Jasen, 2015).

MGST 451: Case # 2 Solution – Fall 2018 Page 8

Question 3: worth 24 marks so please state at least 8 valid points (3 marks
each); 2 statements for each part a) to d): continued

Statement # Point Form Statements and logic:

Q3b: Statement 2: Behavioral Factors
Job Tenure -: There is a negative correlation because longer job tenure tends to mean less initial
“hype” and excitement about the company, leading to a lesser involvement in the equity
program. Longer job tenure also implies an increased likelihood that the employee has less time
left to stay with the company, leading to less buy in stocks.
VP +: Because executives are in a position where they can make decisions that directly affect
stock price, it is more likely that they would participate in equity program. They are also more
risk tolerant as they are more easily able to control resources, avoid punishments, and recover
from errors

Q3c: Statement : Economic Factors

Correlations between electing to receive stock options and job performance
 Netflix’s elimination of the vesting requirement means that the employee can
immediately exercise their options- providing a greater incentive for increased current
job performance
 Netflix’s favorable option pricing: Number of shares = monthly allocation / (stock price
on grant date * 25 percent) is a very generous valuation for the employee (roughly 50%
discount from Black-Scholes), which amplifies the incentivizing effects for increased job
performance

Q3c: Statement 2: Behavioral Factors

 Employee stock options strengthen an employee’s “inertia” to stay with the company- a
more invested interest in the company itself decreases the desire to explore other job
opportunities from different companies (Flowers and Hughes, 1973)
 Stock options create a more personal engagement with the employee, which makes the
employee feel the desire to reciprocate the “gift” of the options back to the company,
which increases job performance (“Incentive or Gift,” 2011)

MGST 451: Case # 2 Solution – Fall 2018 Page 9

Question 3: worth 24 marks so please state at least 8 valid points (3 marks
each); 2 statements for each part a) to d): continued

Statement # Point Form Statements and logic:

Q3d: Statement 1: Economic Factors
When to exercise stock options
 Employee stock options are non-transferable, and it is expensive to mitigate the risk
associated with options through short selling shares (Heath, Huddart, & Lang, 1999).
 Employees may need immediate liquid capital at varying times of the year, and it is
difficult to offer up options as collateral for a loan (Heath, Huddart, & Lang, 1999).
 Options are riskier than other investments, so a risk averse employee may decide to
diversify into safer assets such as cash (Heath, Huddart, & Lang, 1999).

Q3d: Statement 2: Behavioral Factors

Personal beliefs about stock returns: people may believe upward/downward trends to continue
or reverse, causing them to exercise, though economically it can be said that the past does not
predict the future, and people shouldn’t react to them (Heath, Huddart, & Lang, 1999).
Anchoring bias and Risk Aversion: Employees will react to losses or gains in value relative
(anchoring) to the stock price at the time of option issuance, instead of as a measure of overall
option value over its entire life. Losses from anchored reference are also more painful than gains
are pleasurable due to risk aversion bias, causing employees to react (Heath, Huddart, & Lang,
1999).
Groupthink and tendency toward status quo: When fellow peers and colleagues exercise their
options, other employees will follow suit in order to be within the majority (Heath, Huddart, &
Lang, 1999).

MGST 451: Case # 2 Solution – Fall 2018 Page 10

Question 4: 12 marks: Given your answers to questions 2 and 3 what 4 changes
would you suggest that Netflix make to its compensation program (3 marks
each)?

Statement # Point Form Statements and logic:

Q4.1. Change # 1 and why
As stated in question 3, employee stock options strengthen an employee’s inertia to remain with
the company. In exhibit 6, it can be seen that employees that have a negative correlation with
equity participation are more likely to be involuntarily terminated in the next year. This can be
tied to a lower motivation level due to them not having vested ties to Netflix, since they received
all of their compensation in cash instead of cash and stock options. For the employees who
received only cash, increased effort does not mean an increased reward since their reward is not
tied to the company’s stock performance. As such, one change that we suggest is to include a
minimum amount in the percentage of stock options that employees receive as part of their
compensation mix. This will motivate more of Netflix’s employees to act in line with the
company’s interests since part of their compensation is now tied to how the company performs in
the stock market.

Q4.2. Change # 2 and why

As stated in question 2, currently, employees are only allowed to change their compensation mix
annually. This is restrictive and does not promote Netflix’s culture of flexibility and freedom. It
is possible that employees only realize how they can be best compensated sometime in the
middle of the year, which will result in them having to wait until the end of the year before they
can change their compensation mix to what they desire it to be. As previously stated in question
3, employees could suddenly require more liquid capital in the next year due to the previously
unforeseen circumstances arising in their daily lives. As such, a semi-annual revaluation period
would be ideal for employees to decide on how they want to have their compensation mix since
it will allow for more flexibility and freedom to its employees, especially the ones who may
suddenly need more liquid capital mid-way through the year.

Q4.3. Change # 3 and why

As stated in question 3, there is a risk of an anchoring bias when employees first receive their
stock options. Since employees will react to losses or gains in value relative to the stock price at
the time of option issuance, this could heavily influence their decisions of when to exercise the
stock option. As such, we recommend having a small vesting period between the issuance of the
stock options and the time the employees can exercise their stock options. The vesting period
should be long enough for the employees to be able to experience the volatility of the stock
market without having to wait too long to exercise their stock options. This will aid in removing
the possibility of an anchoring reference affecting the employee’s decision in exercising their
stock options.

MGST 451: Case # 2 Solution – Fall 2018 Page 11

Question 4: 12 marks: Given your answers to questions 2 and 3 what 4 changes
would you suggest that Netflix make to its compensation program (3 marks
each)? continued

Statement Point Form Statements and logic:

#
Q4.4. Change # 4 and why
As stated in question 3, there are tons of risk that come with investing in stocks such as the
employee’s personal beliefs about the stock returns, the anchoring bias, and the possibility of
groupthink and the tendency to follow the status quo. Since Netflix is giving its employees the
option to receive part of their compensation in stock options, we recommend that Netflix should
hire a financial advisor or a financial mentor which will work to encourage financial literacy
among Netflix’s employees. This will help employees gain better understanding as to how the
stock program can contribute to their financial health. This acts in Netflix’s interests since
financially-stable employees will be able to perform better at work due to the reduced stress
coming from the employees’ finances.

Question 5: worth 8 marks so please state at least 4 valid points (2 marks

each);

Statement Point Form Statements and logic:

#
Q5.1. Desire to Hedge their Stock Options – Why?
A hedge is an investment to reduce the risk of adverse price movement in an asset. Executives
and employees desire to hedge their stock option because:
 It can protect your stock against unforeseen circumstances that could have an impact on
your holding and it reduces risk in volatile investment
 When investors own large stocks and they believe it can go up or pay dividends, but are
uncomfortable about the risk if stock prices fall (they can use hedge to protect and hold
on to the stock)
 Beneficial for short term profitability when there is high risk, high loss by hedging
potential loss with another trade or investment (if there is a loss, you would be able to
recover some or all losses)

MGST 451: Case # 2 Solution – Fall 2018 Page 12

Question 5: worth 8 marks so please state at least 4 valid points (2 marks
each); continued

Statement # Point Form Statements and logic:

Q5.2. Desire to Hedge their Stock Options – How?
 For investors who don’t use trade options, they can use hedge against existing stocks by
using protective puts (Options Trading, n.d.).
 Involves buying or writing option to protect a position (Options Trading, n.d.).
 If you own stock in a company, then buying puts on the company stock would be an
effective hedge (limits the risk exposure to high losses because you can recover some
losses) (Options Trading, n.d.).

Q5.3. BOD Policy on Insider Trading – Describe

 The insider trading policy prohibits the unauthorized disclosure of material nonpublic
information or the use of information for personal or financial gain
 This policy applies to all officers of the company (employees and directors)
 Discouraged all employees from trading in derivatives relating to Netflix stock
 Policy applies to any of the company’s securities for trading
 Section 16, no family member, co-habitants may engage in transaction

Q5.4. BOD Policy on Insider Trading – Why?

BODs could potentially use insider trading because:
 It is low risk, and high rewards within the company (entitled to trade stocks within
Netflix)
 Provides guidance to avoid situation that may lead to liability of the individual, family,
co-habitants, and the company (avoidance of other outside the company trading)
 There is a potential financial gain from trading within the company as long as you follow
to rules and do not communicate the trade with individuals outside of the company

MGST 451: Case # 2 Solution – Fall 2018 Page 13

Question 6: worth 10 marks so please state at least 5 valid points (2 marks
each);

Statement # Point Form Statements and logic:

Q6.1. What is the broader applicability?
Netflix’s compensation program provides its employees with more options than just cash.
Employees are given flexibility and freedom in terms of choosing compensation mix,
termination (they can hold their unexercised options for up to the 10-year lifespan of the option
after they leave the company), and cash bonuses (employees are no longer tied to cash bonuses
per year since it is added to their salary). This allows their employees to easily personalize the
compensation they receive to suit their own desires. This increases the job satisfaction of the
employees since they are receiving what they want, resulting in more motivated employees
working for Netflix. In addition, since Netflix’s employees also have an increased investment in
the company due to the stock options they may choose to receive, they will be more motivated to
act in line with the company’s best interest in order to drive up the company’s stock value. This
will maximize values for both Netflix and its employees.

Q6.2. Describe settings where it is more effective

As previously stated in question 3, Netflix’s lack of a vesting period in its compensation program
promotes current job performance. This means that Netflix’s method of compensation would be
most effective in a workplace that requires its employees to work under pressure and produce
quality results within a small time-frame. As such, an environment where this type of
compensation strategy would be most effective includes competitive technology companies that
require top-level employees to regularly produce newer and better products in order to stay
ahead of its competitors. It would also be beneficial in workplaces that require its employees to
possess a high-level of autonomy and the abilities to make decisions that are in the best interests
of the company that they work for.

Q6.3. Why would the Settings in 6.2 be more effective

It would be effective in the settings described in 6.2 because Netflix’s compensation strategy
allows its employees to be self-driven and self-motivated. Netflix’s compensation strategy gives
its employees the freedom to innovate and to continuously motivate (through stock options)
themselves to produce quality results and remain as top-level employees. This method of
promoting innovation is extremely beneficial to a tech company that constantly requires newer
and better products from its employees in order to remain competitive. Tech companies also
often provide a high-level of autonomy to its employees since having a centralized decision
maker forcing its employees to innovate is counter-productive and may harm the creativity and
innovation of its employees.

MGST 451: Case # 2 Solution – Fall 2018 Page 14

Question 6: worth 10 marks so please state at least 5 valid points (2 marks
each); continued…

Statement # Point Form Statements and logic:

Q6.4. Describe settings where it is less effective
Netflix’s compensation program would be less effective in companies that have a more
centralized decision-making process and employees that are required to perform repetitive and
tedious tasks. It will also not be effective in companies that have little room for creativity and
innovation, such as shipping and transportation companies, large plant production companies,
and fast-food chains with tons of employees. These companies do not expect their employees to
be innovative or make decisions, and they do not require the same amount of autonomy from
their employees in the same way that Netflix does. The employees of these companies are mostly
focused on following instructions, and therefore, have a more rigid and repetitive work-life.

Q6.5. Why would the Settings in 6.4 be less effective

This is less effective for the settings in 6.4 because instead of requiring their employees to
innovate and create new products, these types of companies require its companies to follow a set
list of “tasks” for the duration of their time as an employee. They only have to finish their
assigned tasks that comply to the standards in a given time frame. Job performance is measured
by the task performed instead of new ideas created. As such, these types of companies would not
require the type of top-level performers that Netflix’s compensation plan attracts. These
companies only need employees that can perform at an adequate level. The companies in 6.4
would also not need their employees to be as motivated as Netflix’s employees since performing
repetitive tasks does not require a large amount of motivation and creativity, instead, they just
need to know what they are doing, follow the rules and do the right thing to maximize
productivity.

MGST 451: Case # 2 Solution – Fall 2018 Page 15

This page is presented for you to list your external references. For websites
please make certain that the grader can copy your link and access the
website…
Felix, B. (2018, May 30). What should I do with my employee stock options? The Globe and
Mail. Retrived from https://www.theglobeandmail.com/investing/personal-finance/gen-y-
money/article-what-should-i-do-with-my-employee-stock-options/

Flowers, V.S., & Hughes, C.L. (1973). Why Employees Stay. Harvard Business Review.
Retrieved from https://hbr.org/1973/07/why-employees-stay

Heath, C., Huddart, S., & Lang, M. (1999).Psychological Factors and Stock Option Exercise.
JSTOR, 114(2), 601-627. Retrieved from https://www.jstor.org/stable/2587018?
seq=9#metadata_info_tab_contents

Incentive or Gift? How Perception of Employee Stock Options Affects Performance.(2011, April
13).Knowledge@Wharton. Retrieved from
http://knowledge.wharton.upenn.edu/article/incentive-or-gift-how-perception-of-
employee-stock-options-affects-performance/

Investopedia LLC. 2018. Economic Efficiency. Retrieved November 13, 2018 from
https://www.investopedia.com/terms/e/economic_efficiency.asp

Kalirajan, K. P. (1990). On Measuring Economic Efficiency. Journal of Applied Economics,

VOL. 5, 75-85. Retrieved from
https://onlinelibrary.wiley.com/doi/pdf/10.1002/jae.3950050106
Larcker, D. F., McCall, A., & Tayan, B. (2010). Equity on Demand: The Netflix Approach to
Compensation. (Business Case Study No. CG-19). Stanford University.

Options Trading. (n.d.). Using hedging in options trading. Retrieved November 12, 2018 from
http://www.optionstrading.org/improving-skills/advanced-terms/hedging/

Parrish, S. (2013, February 20). Stock Options: Top 5 Reasons NOT to Use Them as an
Employee Incentive. Forbes. Retrieved from
https://www.forbes.com/sites/steveparrish/2013/02/20/stock-options-top-5-reasons-not-
to-use-them-as-an-employee-incentive/#548d887c4edc

Pratini, N. (2018, March 21). Salary vs Equity: How to decide what’s right for you. Hired.
Retrieved from https://hired.com/blog/candidates/salary-vs-equity-how-decide-whats-
right/

MGST 451: Case # 2 Solution – Fall 2018 Page 16

MGST 451: Case # 2 Solution – Fall 2018 Page 17
Please circle your lecture number:
L01, L02, L03, L04, L05, L06

All of the group members contributed to this solution YES NO

X

If you answer was no, the non-contributing group members listed in

alphabetical order by surname were;
First Name Surname (last name)

To prove that the group did read this far, please write your group number in
the box below. Failure to do so will lead to a loss of 5%

508
MGST 451: Case # 2 Solution – Fall 2018 Page 18