Why Do Some Firms Give Stock Options To All Employees?: An Empirical Examination of Alternative Theories

Paul Oyer () and Scott Schaefer
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Scott Schaefer: Northwestern U

Research Papers from Stanford University, Graduate School of Business

Abstract: 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 helping firms retain employees. We gather data on firms' stock option grant to middle managers from three distinct sources, and use two methods to assess which theories appear to explain observed granting behavior. First, we directly calibrate models of incentives, sorting and retention, and ask whether observed magnitudes of option grants are consistent with each potential explanation. Second, we 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.

Date: 2004-02
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Citations: View citations in EconPapers (19)

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Related works:
Journal Article: Why do some firms give stock options to all employees?: An empirical examination of alternative theories (2005)
Working Paper: Why Do Some Firms Give Stock Options to All Employees?: An Empirical Examination of Alternative Theories (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:1772r

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