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

Paul Oyer () and Scott Schaefer

No 10222, NBER Working Papers from National Bureau of Economic Research, Inc

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 grants 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.

JEL-codes: J31 J33 (search for similar items in EconPapers)
Date: 2004-01
New Economics Papers: this item is included in nep-fin and nep-lab
Note: CF LE LS
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Citations: View citations in EconPapers (19)

Published as Oyer, Paul & Schaefer, Scott, 2005. "Why do some firms give stock options to all employees?: An empirical examination of alternative theories," Journal of Financial Economics, Elsevier, vol. 76(1), pages 99-133, April.

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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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