Stock-based compensation plans and employee incentives

Arbeitspapier

Standard principal-agent theory predicts that large firms should not use employee stock options and other stock-based compensation to provide incentives to non-executive employees. Yet, business practitioners appear to believe that stock-based compensation improves incentives, and mounting empirical evidence points to the same conclusion. This paper provides an explanation for why stock-based incentives can be effective. In the model of this paper, employee stock options complement individual measures of performance in inducing employees to invest in firm-specific knowledge. In some situations, a contract that only consists of options is more efficient than a contract based solely on individual performance.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Queen's Economics Department Working Paper ; No. 1325

Classification and Topics

• Classification: Wirtschaft ; Economics of Contract: Theory ; Compensation Packages; Payment Methods ; Personnel Economics: Compensation and Compensation Methods and Their Effects
• Subject: Stock-based Compensation ; Employee Stock Options ; Optimal Incentive Contracts ; Firm-specific Knowledge

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Zabojnik, Jan
• Event: Veröffentlichung
• (who): Queen's University, Department of Economics
• (where): Kingston (Ontario)
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/122026
• Last update: 10.03.2025, 11:41 AM CET