Broad-based Stock Options Research Articles

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

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.

Broad‐based Employee Stock Options in US ‘New Economy’ Firms

This paper compares the performance of 229 ‘New Economy’ firms offering broad‐based stock options to that of their non‐stock option counterparts. A simple comparison of these firms reveals that the former have higher shareholder returns, Tobin’s q and new knowledge generation. Multivariate analysis using panel data also suggests that the adoption of a stock option plan results in higher levels of value added per employee. However, we do not find evidence that these plans result in superior growth in Tobin’s q or new knowledge generation.

Designing and Implementing a Broad-Based Stock Option Plan

Companies are increasingly interested in implementing broad-based stock option plans. By giving stock options to nonexecutives, companies make good the promise of letting employees share in the company's success. However, in the variety store of broad-based option plans, one size does not fit all. It is therefore important to balance the benefits of implementing a broad-based stock option plan against its economic and other costs. Good results in implementing broad-based stock options require extensive education and consistent communication to employees, a review process to modify the plan to reflect changes in business needs, and an increase in the stock price so that the plan generates value for participants. But, even a good plan design, one that achieves important business objectives at a reasonable cost, can still fail due to inadequate effort, market risks, and maintenance difficulty.

How to Use Technology to Effectively Deliver Broad-Based Stock Option Plans

Companies turning to broad-based stock option plans should consider using new technologies to support these plans in terms of both administration and communication. Indeed, as the number of employees who are eligible for these types of plans continues to explode, the administrative burden for typical HR departments, which in the past served these plans with simple spreadsheet programs, will become overwhelming without the help of technology. Furthermore, intranet, interactive voice response, and other technological solutions would make communicating information to employees easier. The right technology partner will also contribute new skills and expertise in the move to broader-based stock option plans.

Do Broad-Based Stock Options Create Value?

Once the exclusive province of company executives, today organizations across the corporate landscape are offering stock options to employees at all levels. Identifying strategically important behaviors and linking them to the stock option plan design can create value for an organization. Options can be used to attract and retain employees, align worker and company interests, and enhance corporate performance, particularly when worker participation and ownership are actively encouraged. However, a vital component of this equation is greater knowledge acquisition: options should be accompanied by training dollars to allow employee-owners to learn about the organization's industry and competitive forces and how to read and interpret financial documents. Under these circumstances, a corporate culture steeped with ownership participation and continuous learning will flourish and ultimately enhance the organization's bottom line.

Seismic shifts in HR management—a case study in mapping radical change at pepsi

Employment Relations TodayVolume 21, Issue 4 p. 407-417 Feature Seismic shifts in HR management—a case study in mapping radical change at pepsi Bill Jensen, Bill Jensen Bill Jensen is president of Jensen Communications Group (JCG), New York, a company whose vision is to start a revolution in the way businesses create and manage knowledge. JCG's clients include such companies as PepsiCo, Pepsi-Cola, NationsBank, Quaker, Citibank, and Merck.Search for more papers by this authorGavin Kerr, Gavin Kerr Gavin Kerr is director of Human Resources at Pepsi-Cola's New England division in Waltham, Massachusetts. He began with PepsiCo in 1988, when he created and implemented the first broad-based stock option program for over 100,000 of PepsiCo's employees worldwide.Search for more papers by this author Bill Jensen, Bill Jensen Bill Jensen is president of Jensen Communications Group (JCG), New York, a company whose vision is to start a revolution in the way businesses create and manage knowledge. JCG's clients include such companies as PepsiCo, Pepsi-Cola, NationsBank, Quaker, Citibank, and Merck.Search for more papers by this authorGavin Kerr, Gavin Kerr Gavin Kerr is director of Human Resources at Pepsi-Cola's New England division in Waltham, Massachusetts. He began with PepsiCo in 1988, when he created and implemented the first broad-based stock option program for over 100,000 of PepsiCo's employees worldwide.Search for more papers by this author First published: Winter 1994 https://doi.org/10.1002/ert.3910210405Citations: 4 AboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinked InRedditWechat Citing Literature Volume21, Issue4Winter 1994Pages 407-417 RelatedInformation