Gerald Weiss left Wall Street for the promise of a CFO position at a well-established corporation. He was given a 10-year options package with a guaranteed floor of $12 million and unlimited upside. To ensure the entire package would be worth at least $12 million after 10 years, Gerald negotiated a special provision, which gave him the ability to "gross-up" his options twice over those ten years. If the stock price fell substantially, Gerald would be awarded more options (at-the-money) to bring the entire Black-Scholes value of his package back up to $12 million. Because of the company's culture of informality, the deal was agreed to with a handshake from the CEO, witnessed by the current CFO and the VP of human resources, but not written down. When the stock price actually fell, and Gerald asked to revalue his options package, the company reneged on the deal. Teaching Objective: To generate discussion about the benefits and pitfalls of mega-option grants, the issue of revaluing options, and the conflict between adhering to company culture and protecting the financial interests of the employee.

This case focuses on the challenges of incentivizing innovation within Moog, an engineering company based in New York state that designs and builds guidance systems for space, air, and land-based travel. The case enables students to grapple with the challenges of using compensation to motivate and incentivize employees to create commercially successful innovations. Thick culture motivates employees to innovate in unique ways that money cannot. Students analyze the ways in which Moog's unique culture and current incentive systems successfully, and unsuccessfully, drive innovation, considering Moog's specific challenge of commercializing and scaling innovations. Throughout the discussion, students will understand the ways in which incentivizing innovation is a structurally challenging problem within large companies. Incentivizing innovation differs from incentivizing other types of performance, and students should realize that money alone cannot drive innovation because of the challenges of measuring performance, especially given the long time horizons and the fact that innovation necessarily involves risk and uncertainty.