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Sorting Effects of Broad-Based Equity Compensation

David Tsui () and Marshall Vance ()
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David Tsui: Leventhal School of Accounting, Marshall School of Business, University of Southern California, Los Angeles, California 90089
Marshall Vance: Pamplin School of Business, Virginia Tech, Blacksburg, Virginia 24060

Management Science, 2023, vol. 69, issue 7, 4240-4258

Abstract: We examine the sorting role of broad-based equity pay using detailed employee-level data. We propose trust in management as an important characteristic over which equity pay sorts employees, as such pay typically leaves employees with concentrated positions in employer stock and therefore more exposed to the outcomes of management’s actions. Consistent with this conjecture, we find that the relation between employees’ perceptions of management’s credibility and voluntary turnover intentions is significantly stronger in the presence of a broad-based equity plan. Our findings provide insight into how broad-based equity pay can improve firm performance despite theoretical challenges regarding its incentive effects.

Keywords: employee compensation; equity compensation; retention; sorting; turnover (search for similar items in EconPapers)
Date: 2023
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