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Stock option compensation and equity values

Author

Listed:
  • Panu Kalmi

    (Helsinki School of Economics)

Abstract

I present a model where increasing employee participation in a stock option scheme leads to higher performance but with a cost to shareholders. I show that firms with higher market values per employee are more likely to have an option scheme and they offer stock options to a broader group of employees. The model yields empirical predictions that are consistent with the stock option boom of the late 1990s and their reduced popularity after the stock market decline.

Suggested Citation

  • Panu Kalmi, 2006. "Stock option compensation and equity values," Economics Bulletin, AccessEcon, vol. 10(2), pages 1-8.
    • Handle: RePEc:ebl:ecbull:eb-06j30001
    as

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    File URL: http://www.accessecon.com/pubs/EB/2006/Volume10/EB-06J30001A.pdf
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    References listed on IDEAS

    as
    1. Ittner, Christopher D. & Lambert, Richard A. & Larcker, David F., 2003. "The structure and performance consequences of equity grants to employees of new economy firms," Journal of Accounting and Economics, Elsevier, vol. 34(1-3), pages 89-127, January.
    2. Brian J. Hall & Kevin J. Murphy, 2003. "The Trouble with Stock Options," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 49-70, Summer.
    3. Core, John E. & Guay, Wayne R., 2001. "Stock option plans for non-executive employees," Journal of Financial Economics, Elsevier, vol. 61(2), pages 253-287, August.
    4. Brian J. Hall & Kevin J. Murphy, 2003. "The Trouble with Stock Options," NBER Working Papers 9784, National Bureau of Economic Research, Inc.
    5. repec:bla:jfinan:v:59:y:2004:i:4:p:1619-1650 is not listed on IDEAS
    6. Hanlon, Michelle & Rajgopal, Shivaram & Shevlin, Terry, 2003. "Are executive stock options associated with future earnings?," Journal of Accounting and Economics, Elsevier, vol. 36(1-3), pages 3-43, December.
    7. Douglas L. Kruse, 1996. "Why Do Firms Adopt Profit-Sharing and Employee Ownership Plans?," British Journal of Industrial Relations, London School of Economics, vol. 34(4), pages 515-538, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    compensation;

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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