Why do some firms give stock options to all employees?: An empirical examination of alternative theories

Many firms issue stock options to all employees. We consider three potential economic justifications for this practice: providing incentives to employees, inducing employees to sort, and employee retention. We gather data from three sources on firms’ stock option grants to middle managers. First, we...

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Bibliographic Details
Published inJournal of financial economics Vol. 76; no. 1; pp. 99 - 133
Main Authors Oyer, Paul, Schaefer, Scott
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.04.2005
Elsevier
Elsevier Sequoia S.A
SeriesJournal of Financial Economics
Subjects
Empirical research
Employee compensation
Employees
Enterprises
Finance
Financial economics
Human resource management
Incentives
Options on stocks
Regression analysis
Retention
Sorting
Stock options
Studies
Incentives
Stock options
G30
J41
Employee compensation
J33
Retention
Sorting
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Summary:Many firms issue stock options to all employees. We consider three potential economic justifications for this practice: providing incentives to employees, inducing employees to sort, and employee retention. We gather data from three sources on firms’ stock option grants to middle managers. First, we directly calibrate models of incentives, sorting and retention, and ask whether observed magnitudes of option grants are consistent with each potential explanation. We also conduct a cross-sectional regression analysis of firms’ option-granting choices. We reject an incentives-based explanation for broad-based stock option plans, and conclude that sorting and retention explanations appear consistent with the data.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2004.03.004