In recent years, the use of stock options as an incentive compensation scheme has evolved to be one of the most debated topics in the finance literature as well as in the corporate world. The investigations into the option granting practices at a number of U.S. firms, which were accused of fraudulent backdating options, as well as the compensation schemes of top bankers and other top executives during the current financial crisis, heated up this debate even more. Our study contributes to the empirical research on stock option plans (SOPs) by focusing on start-up or \u27new economy\u27 firms in Germany. For the 329 firms that went public at the \u27Neuer Markt\u27, a special stock market segment for young growth companies in Germany, we find a high popularity of stock options in that more than 90% of all IPOs implemented at least one stock option plan (SOP) at the time of the IPO or later on. These SOPs were broad-based and included rank and file employees as the options\u27 recipients. Our empirical results reveal--at least with hindsight--that accepting stock options as part of an overall salary package did not pay off financially for employees during that time period. Furthermore, the success and performance of the investigated SOPs were influenced by their statutory design and the succession of three different lock-up periods. These made a profitable option exercise for employees very difficult. Our findings question the rationale behind the design, introduction, and implementation of SOPs during the time of the \u27Neuer Markt\u27 in Germany at least from the perspective of non-executive employees
