The Determinants of Stock Option Compensation: Evidence from Finland

32 Pages Posted: 16 Jun 2006

See all articles by Derek C. Jones

Derek C. Jones

Hamilton College - Economics Department

Panu Kalmi

Aalto University - Department of Economics

Mikko Mäkinen

Aalto University


A new, long, and rich panel data set consisting of all Finnish publicly traded firms is used to study how firm characteristics and stock market developments influence the adoption and targeting of stock option compensation. Stock option adoption is found to be a procyclical phenomenon. Findings from firm-level econometric analysis often corroborate those based on U.S. data, but important differences also emerge. Findings include: (i) firms with higher market value per employee are more likely to use stock option compensation; (ii) share returns from the past year affect the adoption of targeted stock options, but not broad-based plans; (iii) our results are consistent with the hypothesis that selective and broad-based plans arise as solutions to differing monitoring difficulties. Broad-based schemes are observed when production is human capital-intensive and employee performance is hard to monitor, while selective schemes are adopted when ownership is dispersed and therefore owners may have weak incentives to monitor management.

Suggested Citation

Jones, Derek C. and Kalmi, Panu and Mäkinen, Mikko, The Determinants of Stock Option Compensation: Evidence from Finland. Industrial Relations: A Journal of Economy and Society, Vol. 45, No. 3, pp. 437-468, July 2006, Available at SSRN: or

Derek C. Jones (Contact Author)

Hamilton College - Economics Department ( email )

198 College Hill Road
Clinton, NY 13323
United States
315-859-4381 (Phone)
315-859-4477 (Fax)

Panu Kalmi

Aalto University - Department of Economics ( email )

PO Box 1210
Helsinki, 00101
+358 9 431 38 283 (Phone)
+358 9 431 38 738 (Fax)

Mikko Mäkinen

Aalto University ( email )

P.O. Box 21210
Helsinki, 00101

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