fter reading Chapter 11, read Case 1: Building an Executive Compensation Package on p. 288-289 and then answer the following questions:

After going public and starting to sell shares of stock in the stock market, Safeguard Insurance is considering the best approach to use the companys stock value in the executive compensation plan. The value of the stock has been a key indicator of the overall success of the company and company executives are closely monitoring the company stock value. The company is considering offering the executives either annual incentive stock options or a phantom stock plan.

1. How does a stock option plan provide an incentive for executives?

2. Which plan would be better for Safeguard Insurance, the incentive stock option plan or the phantom stock plan? Explain your decision.