The cost of granting executive stock options with strike prices adjusted by the cost of capital

Purpose – The purpose of this paper is to estimate the cost of granting executive stocks with strike prices adjusted by the cost of capital.

Design/methodology/approach – In the paper a Monte Carlo simulation approach developed in Longstaff and Schwartz is used in conjunction with the subjective valuation model developed in Ingersoll to value these executive stock options that are subject to performance hurdles.

Findings – The paper finds that standard European Black-Scholes-Merton option values overstate the true cost to the firm of granting these executive stock options. The option values also decrease with a higher dividend yield, a higher performance hurdle, a longer vesting period, and a shorter maturity.

Research limitations/implications – While the study in the paper is limited to the valuation of executive options, the methodology can be used to study incentive effects of executive stock options that have a performance hurdle.

Practical implications – The approach used in this paper to estimate the cost of granting executive stock options is a clear improvement over standard European option pricing approaches that often result in biased estimates.

Originality/value – This paper presents a first attempt to integrate the Ingersoll utility-theoretic model and the Longstaff and Schwartz least squares Monte Carlo algorithm to estimate the subjective value and the objective cost of executive stock options with a performance hurdle. This valuation approach will be useful in the study of other types of executive compensation.

Education and training institutions : building social capital for regional development

Education and training institutions from schools through to universities have a vital role in supporting development in regional Australia. The interaction between these institutions and their rural communities influences the social capital of the community and the extent to which the community is a learning community, willing and able to manage change to the community’s advantage.

There are benefits to be had from a collaborative approach to planning and delivering training. This approach is consistent with theories of social capital that emphasise the crucial part played by networks, values and trust in generating superior outcomes for individuals, communities and regions. Research has found that education and training is most effective in building social capital and learning communities were there is attention to customising or targeting education and training provision to local needs. The key to matching provision with local needs, particularly in the more rural and remote areas, is collaboration and partnerships. Partners can be regional organisations, other educational institutions, businesses and government. The factors that enhance the effectiveness of the collaborations and partnerships are the elements of social capital: networks, shared values and trust, and enabling leadership.

Networks are most effective where there were opportunities and structures for interaction, which can be termed interactional infrastructure, that foster networks within the region, and networks that extended outside the region. Interactional infrastructure includes regional forums, committee structures, consultative processes and opportunities for informal discussion addressing the issues of education, training and employment in a community or region. Better outcomes are evident when there is an interactional infrastructure that is resourced with financial, physical and human resources of sufficient quantity and quality. Collaborations provide access to a greater range of external resources through extended external networks. Effective networks and shared visions, values and trust among the partners in a collaboration, are fostered by enabling leaders. Educational institutions are well placed to supply the ‘human infrastructure’ that makes collaborations and partnerships work, including enabling leadership.

Attention to factors associated with the quality of social capital, especially interactional infrastructure including leadership, shared vision and values and networks within and external to the community, can be expected to improve the effectiveness of education and training outcomes. More importantly, a collaborative approach to planning for education and training in rural regions will build the capacity of regions and their constituent communities to develop and change by building social capital resources. Leadership is an important driver of processes that build community and regional capacity and ultimately produce social and economic benefits through regional development. Educational providers in rural regions are well placed to act as enabling leaders.

Community efficacy and social capital

It has been suggested that the quantity and quality of a community’s social capital has a large impact on that community’s capacity to manage change. Despite many attempts, social capital remains notoriously difficult to measure. There is general consensus that social capital is the ‘property’ of a community or collective, yet in measurement frameworks social capital is normally aggregated up across individuals and different levels. Communities are not homogeneous; we argue that the differential capacity of various groups within the community to participate should be considered. Any measure of community social capital must take account of the diversity of the community and potentially unequal access of groups and individuals to community social capital: the nature and quality of opportunities is not uniform. Further, the validity of social capital depends in fact on its contextualisation – social capital resources that are effective in one context are not necessarily effective in another.

In this paper we present a new way of thinking about the social capital of a community, linked to the community’s capacity to deliver favourable outcomes for its members. We use the term community efficacy for this capacity to manage change and influence the future of the collective and community members. We present a framework that describes the nature and quality of the factors that influence community efficacy and are at the heart of a community’s social capital resources. The framework recognises that social capital resources are used at the point of interaction between community members; hence opportunities for interaction are important. We suggest that the framework can be applied to measure community efficacy in various contexts, and discuss how it can be applied to a rural community’s ability to foster successful transitions to young adulthood for its young people.

Building social capital in groups : facilitating skill development for natural resource management

Analysis of the experiences of four farmer groups set up to learn how to jointly manage local natural resource issues shows that the groups are going though two simultaneous processes. One builds technical competency in natural resource management and the other is the underpinning social process that allows the groups to make decisions and work collectively, which builds social capital. Natural resource management practitioners and farmers are practical people. They are likely to be more comfortable with a process that develops monitoring tools and benchmarks for natural resource management than a process of group development and social capital formation. Yet the two are intrinsically linked. This paper reflects on and analyses the experience of establishing and working with farmer groups as they go through a process of identifying environmental issues, setting and monitoring environmental benchmarks and identifying and implementing sustainable farming practices to meet the benchmarks.

Two questions emerged from the analysis. First, how do the four groups compare to other measures of effective natural resource management groups? Second, what are the characteristics of the groups that make them more or less effective and what has occurred in the groups (either before or during this project) to make them more or less effective? Social capital emerges as a key determinant of group effectiveness. Social capital is most effective when it comprises a balance of bonding and bridging networks, and includes shared values in relation to the purpose of the group.

Policy makers and extension workers need to understand the link between the two simultaneous processes occurring as people come together in groups to define and implement best practice at a local level, and how to use knowledge of social processes when designing the more concrete process of developing and implementing best practice monitoring and benchmarking with groups. An understanding of how people build social capital as they work in groups will assist with designing and facilitating group projects in a range of contexts, not only natural resource management.

Learning in agriculture : building social capital in island communities

Social capital helps communities respond positively to change. Research in agricultural businesses and into managing change through learning in communities has highlighted the importance of relationships between people and the formal and informal infrastructure of communities to the quality of outcomes experienced by communities, businesses and individuals. Communities can be geographic communities - the data drawn on in this paper are from an island community, for example or communities-of-common-purpose, such as agricultural organisations. This paper reviews research into managing change through learning and social capital, presents a model of the simultaneous building and use of social capital and explores the ways in which learning as part of an agricultural community can be used to bring benefits to geographic communities such as islands. The model presented in this paper stems from studies of the informal learning process that builds resilient communities. It conceptualises the way in which social capital is used and built in interactions between individuals. There are two stages to the model. The first stage depicts social capital at the micro level of one-on-one interactions where it is built and used. The second stage of the model is about the interrelationship of micro-level social capital processes with the community and societal-level social capital resources.

Social capital : an analytical tool for exploring lifelong learning and community development

In her recent contribution to the British Educational Research Journal, Pauline McClenaghan identified the link between social capital and community development, particularly community development education, as a core area where scholarly and policy interests overlap. She concluded that the concept of social capital is unable to grapple with the complex social divisions that characterise contemporary Europe. The authors of this article question her account on three main grounds: the definition of social capital, which they hold is overly narrow, and does not deal with what Woolcock calls the ‘linking’ role of social networks; the presentation of the theoretical foundations of community development, which they believe is flawed in certain key respects; and a lack of clarity in the relationship between the research and the findings reported. The authors then present their own theoretically informed account of social capital as a means of understanding the role of community development, the challenges that it can face and the role of adult education for community development.

Policy in the knowledge economy social network : a social capital redux

Purpose – The purpose of this paper is to suggest how enabling policy should be focused in a knowledge economy by developing the concept of a knowledge economy social network (KESN).

Design/methodology/approach – The paper employs an interdisciplinary approach in developing the KESN by drawing on concepts and methodology from economics, political science and social network theory.

Findings – The KESN's social capital is defined. As such, maintaining accountability, increasing cohesion and connections among knowledge actors are suggested as relevant guidelines for policy in the KESN.

Research limitations/implications – The knowledge economy should ideally be seen as having unique needs compared to the traditional economy in devising policy.

Practical implications – The paper suggests using the KESN as a basis for devising policy for a knowledge economy.

Originality/value – The paper uses an interdisciplinary approach to studying the knowledge economy and introduces the KESN.

Capital works procurement policies in Australia : implications for understanding and meeting client needs

This paper undertakes a case study of procurement through a comparative analysis of the capital works procurement policies of the Commonwealth, State, and Territory Governments in Australia. Capital works procurement policies provide the mechanism by which governments manage procurement processes, and frame how individual government agencies, as clients, participate in those processes. The paper proposes a typology of capital works procurement approaches, together with implications of how these different policies play out for clients. A tentative proposition is advanced that policy approaches to capital works procurement either explicitly or implicitly, make assumptions about the organisational capability of clients to plan and deliver capital works projects, including their ability to understand and articulate their own building needs. Additionally, the paper concludes that innovation has occurred at a policy level in capital works procurement. Recommendations for further research are suggested.

Pedagogy and institutional values : the social capital that underpins socially constructive pedagogy and the common good

The analysis of Syed Hussein Alatas, provides us with a basic framework from which to engage the way creativity and change can be articulated in education without slipping into a neo-colonial mindset. The core binary that Alatas presents us is between the ‘captive’ mind and the ‘creative’ mind. Contemporary Malaysian educational literature recognises that the demands of the knowledge economy and globalization necessitate engaging with socially constructivist pedagogy as a way of addressing the limitations and narrowness of what are referred to as traditional authoritarian ‘top down’ teaching methods. However this retheorization of pedagogical practice needs to be approached in a fashion that recognises and respects local values and culture. The social values and capital that inform pedagogy both in its formal level as officially sanctioned techniques but also in its informal level as the implicit practices that characterise human interaction on campus require a much closer look at the relationship between pedagogy, social structure and social values. The clear yet very deep insight of Syed Hussein Alatas, on the importance of the creative mind as an alternative to captivity provides us with a Malaysian theorization that is both local but also global and relevant to how we understand reform and education in the higher education sector.