How to Motivate Core Technical Employees and Middle-Level Managers: Evidence from Equity Incentive, Innovation, and Firm Specificity

54 Pages Posted: 13 Dec 2021

See all articles by Shunji Mei

Shunji Mei

University of Queensland - Business School

Ronghong Huang

University of Queensland - Business School

Kelvin Jui Keng Tan

University of Queensland - Business School; Financial Research Network (FIRN)

Date Written: July 31, 2021

Abstract

This paper examines to what extent the equity incentives awarded to a specific group of nonexecutive employees (core technical employees and middle-level managers) are related to subsequent corporate innovation and firm specificity. We exploit a unique dataset to directly capture core staff equity incentives and their associated features. We document the following findings: (1) using an instrumental variable approach, we document a positive causal relation between core staff stock option value per employee and innovation; (2) core staff restricted stock value per employee leads to better firm specificity and a longer contribution horizon; (3) an indirect measure of nonexecutive equity incentives adopted in the prior literature underestimates their contribution to innovation; and (4) an optimal core staff equity incentive plan should allow for enough pressure at the beginning as well as long-lasting monetary incentives in the future.

Keywords: nonexecutive employees, equity incentive, corporate innovation

JEL Classification: G30, J41, M52, O31

Suggested Citation

Mei, Shunji and Huang, Ronghong and Tan, Kelvin Jui Keng, How to Motivate Core Technical Employees and Middle-Level Managers: Evidence from Equity Incentive, Innovation, and Firm Specificity (July 31, 2021). Available at SSRN: https://ssrn.com/abstract=3702830 or http://dx.doi.org/10.2139/ssrn.3702830

Shunji Mei (Contact Author)

University of Queensland - Business School ( email )

Australia

Ronghong Huang

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Kelvin Jui Keng Tan

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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