Employee Sentiment and Stock Option Compensation

Topics:
Commercial Banking
Tags:
Benefits,
Stock,
National Bureau Of Economic Research,
Investment,
Human Resources,
Financial Services,
Finance,
Equity,
Employee,
Compensation,
...
Source:
National Bureau of Economic Research

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Overview: The use of equity-based compensation for employees in the lower ranks of large organizations is a puzzle for standard economic theory: undiversified employees should discount company equity heavily, and any positive incentive effects should be diminished by free rider problems. The paper analyzes whether the popularity of option compensation for rank and file employees may be driven by employee optimism. It develops a model of optimal compensation policy for a firm faced with employees with positive or negative sentiment, and explicitly takes into account that current and potential employees are able to purchase equity in the firm through the stock market.

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Format: PDF | Size: 397KB | Date: Jun 2005 | Pages: 65

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