Stock Option Plans for Non-Executive Employees
49 Pages Posted: 8 Dec 2000
Date Written: October 2000
We examine determinants of non-executive employee stock options outstanding, grants, and exercises for 756 firms during 1994 to 1997. We find that firms use greater stock option compensation when facing capital requirements and financing constraints. Our results are also consistent with firms using options to attract certain types of employees, provide retention incentives, and create incentives to increase firm value. After controlling for economic determinants and stock returns, option exercises are greater (less) when the firm's stock price hits 52-week highs (lows), which confirms in a broad sample the psychological bias documented by Heath, Huddart, and Lang (1999).
Keywords: Employee stock options, Compensation, Equity incentives
JEL Classification: G32, J33, J41
Suggested Citation: Suggested Citation