Under increasing pressure from regulators and others, companies are changing the way they reward their top executives. As traditional incentives such as cash bonuses and stock options have become more costly and controversial for companies, another form of executive compensation has gained favor: restricted stock.

Restricted stock is stock that passes to an executive over a period of time. Since its value fluctuates like the unrestricted shares held by most investors, restricted stock better aligns executives' long-term interests with those of shareholders. The appeal of restricted stock is that it puts executives in the same boat as ordinary shareholders.

While restricted stock is touted as a compensation that links pay to performance, some critics deny the performance link and deride the popular incentive as "pay for pulse." They argue that restricted stock costs executives nothing and, thus, rewards them regardless of results. In response, proponents of the compensation point out that restricted stock is worth less if the company's share price goes down and, therefore, performance is part of the equation.