Professors at Penn State and Brigham Young find that the more stock options executives get, the more likely they are to make risky decisions that will harm stock value. That's because options have no downside. If your option price is $40, it's all the same to you if the stock is $39 or $5. So, the authors say, too often CEOs swing for the fences and strike out instead.

A big package of stock options is no substitute for actual ownership when aiming to encourage chief executives to take prudent risks that provide reliable stock returns, according to a new study.

CEOs whose compensation packages include a large percentage of stock options tend to make risky decisions that generate big share price losses more often than big gains, said study authors W. Gerard Sanders of Brigham Young University and Donald Hambrick of Penn State University.

Proponents of stock option awards say they attract and retain talented executives, and give managers a vested interest in the company's future stock performance.

But the study's authors say they are hardly effective in boosting company results.

"While they were implemented as a substitute for stock ownership, they don't mirror stock ownership because they have no downside," said Sanders, associate professor of strategic management at Brigham Young.

"It's somewhat akin to walking down the Strip in Vegas and handing money to a gambler and... promising to share only the upside," he said.

The study of 950 companies, randomly selected from the Standard & Poor's 500 Index, as well as mid-cap and small-cap indexes, is to be published in the October-November edition of the Academy of Management Journal.