Sorting Effects of Broad-Based Equity Compensation

David Tsui, Marshall Vance (2022) Sorting Effects of Broad-Based Equity Compensation. Management Science

50 Pages Posted: 18 Aug 2018 Last revised: 1 Sep 2022

See all articles by David Tsui

David Tsui

University of Southern California - Marshall School of Business

Marshall D. Vance

Virginia Tech

Date Written: February 23, 2020

Abstract

We examine the sorting role of broad-based equity pay using detailed employee-level data. We propose trust in management as an important characteristic over which equity pay sorts employees, as such pay typically leaves employees with concentrated positions in employer stock and therefore more exposed to the outcomes of management’s actions. Consistent with this conjecture, we find that the relation between employees’ perceptions of management’s credibility and voluntary turnover intentions is significantly stronger in the presence of a broad-based equity plan. Our findings provide insight into how broad-based equity pay can improve firm performance despite theoretical challenges regarding its incentive effects.

Keywords: employee compensation, equity compensation, retention, sorting, turnover

JEL Classification: G30, J33, J41, J63, M41, M52

Suggested Citation

Tsui, David and Vance, Marshall D., Sorting Effects of Broad-Based Equity Compensation (February 23, 2020). David Tsui, Marshall Vance (2022) Sorting Effects of Broad-Based Equity Compensation. Management Science, Available at SSRN: https://ssrn.com/abstract=3234108 or http://dx.doi.org/10.2139/ssrn.3234108

David Tsui

University of Southern California - Marshall School of Business ( email )

3660 Trousdale Parkway
Los Angeles, CA 90089
United States

Marshall D. Vance (Contact Author)

Virginia Tech ( email )

Blacksburg, VA 24061
United States

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