Why Do Some Firms Give Stock Options to All Employees?: An Empirical Examination of Alternative Theories

43 Pages Posted: 20 Jan 2004

See all articles by Paul Oyer

Paul Oyer

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Scott Schaefer

University of Utah - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: January 2004

Abstract

Many firms issue stock options to all employees. We consider three potential economic justifications for this practice: providing incentives to employees, inducing employees to sort, and helping firms retain employees. We gather data on firms' stock option grants to middle managers from three distinct sources, and use two methods to assess which theories appear to explain observed granting behavior. First, we directly calibrate models of incentives, sorting and retention, and ask whether observed magnitudes of option grants are consistent with each potential explanation. Second, we conduct a cross-sectional regression analysis of firms' option-granting choices. We reject an incentives-based explanation for broad-based stock option plans, and conclude that sorting and retention explanations appear consistent with the data.

Suggested Citation

Oyer, Paul and Schaefer, Scott, Why Do Some Firms Give Stock Options to All Employees?: An Empirical Examination of Alternative Theories (January 2004). NBER Working Paper No. w10222, Available at SSRN: https://ssrn.com/abstract=486226

Paul Oyer (Contact Author)

Stanford Graduate School of Business ( email )

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National Bureau of Economic Research (NBER)

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Scott Schaefer

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States

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