The Evolution of Employee Compensation, Dilution, and Payout Policy

64 Pages Posted: 4 Jun 2018 Last revised: 8 Aug 2018

Alice A. Bonaime

University of Arizona

Kathleen M. Kahle

University of Arizona - Department of Finance

David Moore

Loyola Marymount University

Alok Nemani

University of Arizona, Eller College of Management, Department of Finance

Date Written: August 7, 2018

Abstract

We examine the relation between equity compensation and payout policy in light of the shift from options to restricted stock and the rise in performance-based compensation. Our results strongly support dilution as the primary channel through which compensation relates to payout policy; dividend protection no longer has first-order effects on payout. Analyses using a shock to compensation around mandatory option expensing and an instrumental variable approach suggest that the relation between dilution and payout is likely causal. Further, as the dilution channel predicts, equity compensation positively relates to repurchase frequency and thus repurchase timing.

Keywords: Share Repurchases, Dividends, Payout Policy, Stock Options, Restricted Stock, Employee Compensation, Earnings Dilution

JEL Classification: G30, G32, G35

Suggested Citation

Bonaime, Alice A. and Kahle, Kathleen M. and Moore, David and Nemani, Alok, The Evolution of Employee Compensation, Dilution, and Payout Policy (August 7, 2018). Available at SSRN: https://ssrn.com/abstract=3180292 or http://dx.doi.org/10.2139/ssrn.3180292

Alice A. Bonaime (Contact Author)

University of Arizona ( email )

Eller College of Management
Department of Finance
Tucson, AZ 85721
United States

Kathleen M. Kahle

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
520-621-7489 (Phone)

David Moore

Loyola Marymount University ( email )

Los Angeles, CA 90045
United States

Alok Nemani

University of Arizona, Eller College of Management, Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tuscon, AZ 85721
United States

HOME PAGE: http://https://finance.eller.arizona.edu/

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