Equity‐Based Compensation for Employees: Firm Performance and Determinants

Melissa B. Frye

Journal of Financial Research, 2004, vol. 27, issue 1, 31-54

Abstract: I examine the effect of employee equity‐based compensation (EBC) on firm performance and the determinants of EBC. Using two samples, I find that firms have come to rely more heavily on EBC than in the past. For both samples, I document a significant, positive relation between Tobin's q and the percentage of employee compensation that is equity based. For accounting returns, I find a positive relation with the earlier sample. However, for the later sample I find that greater use of EBC leads to lower levels of future accounting returns. I also find that the determinants of the proportion of EBC are different between the two samples.

Date: 2004
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