Compensation Objectives and the Organization-Wide Use of Non-Cash Pay

Abstract:     
This study investigates the effects of attraction, retention, and incentive objectives on the organization-wide use of two non-cash pay elements: benefits and broad-based equity (stock and stock option) grants. Recent economic theories lead to conflicting implications for the use of various non-cash pay elements in achieving these objectives. Data from the European operations of 185 large firms indicate that benefits are primarily provided for retention purposes. Broad-based option grant eligibility is positively associated with incentive and attraction purposes, but negatively associated with retention objectives, despite claims that options' vesting provisions enhance their retention advantages. Stock grant eligibility is also positively associated with incentive objectives, but has little relation with either attraction or retention objectives. Further examination of overall compensation configurations (cash pay, benefits, and equity grants) indicates that different combinations of these elements are used to achieve compensation objectives. Finally, national labor market characteristics and differences in employee- and firm-level taxes on non-cash pay influence the use of benefits and broad-based equity plans, beyond the influence of stated attraction, retention, or incentive objectives.

JEL Classifications: J33, H24, H25, J40, M40

Working Paper Series