Retention Effects of Employee Stock Options: Evidence from Bunching at Vesting Dates

Qing Gong, Hong Zhang and Li-An Zhou

Economic Development and Cultural Change, 2026, vol. 74, issue 3, 777 - 816

Abstract: This paper examines the retention effect of broad-based employee stock options. Leveraging novel employee-level data and semi-random timing of vesting dates, we estimate a bunching model and find an 88%–239% increase in the quitting rate of option owners shortly after vesting. The intensive-margin responses translate to 3–5 months of delayed turnover. The effect is robust, present only among voluntary quitters, and increases with the value of unexercised options. Back-of-the-envelope comparison of benefits and costs (1) shows option owners have superior performance relative to benchmark groups and (2) provides preliminary estimates of the firm’s break-even conditions.

Date: 2026
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