The Influence of Stock Options on Employee Performance and Engagement
Group: Finance
Members: Nick Conrad, Josh Elder, Tyler Ingram, Leon Iskhabevkey, Keoni Terrana
Purpose: Our blog is about evaluating how stock options in terms of incentives affect employee performance and engagement in businesses.
Reference
Agrawal, A., et al. Employee Stock Options: Are They Indeed Superior to Other Incentive Compensation Schemes? Journal of Business and Psychology, Kluwer Academic Publishers-Plenum Publishers, Mar. 2002, link.springer.com/article/10.1023/A:1012820923455#citeas.
This article talks about four different types of incentive offerings for employees in corporations that include stock options, merit pay, profit sharing, and gain sharing. There are two management theories called the equity theory and expectancy theory that are used to evaluate which incentive programs work best to motivate employees which would ultimately improve their performance. Based on the data gathered in the article, some incentives might be put to better use than others based on the style of management implemented.
Blasi, J., Freeman, R., Mackin, C., & Kruse, D. (2008). Creating a Bigger Pie? The Effects of Employee Ownership, Profit Sharing, and Stock Options on Workplace Performance. The National Bureau of Economic Research. doi: 10.3386/w14230
This paper explores data gathered from an NBER survey of tens of thousands of employees from 14 firms taken in 2002 and 2006. It details how shared compensation affects turnover, loyalty, effort, and general workplace performance. The results show that “shared capitalism” has extremely beneficial effects on most aspects, especially when combined with other motivating factors such as good wages and low supervision. This is excellent evidence that providing employee stock options not only has an influence on employee performance but a significant, positive one.
Hallock, K. F., & Olson, C. A. (2006, January 23). The Value of Stock Options to Non-Executive Employees. Retrieved January 29, 2020, from https://www.nber.org/papers/w11950
This online article reports how employees perceive stock-options by using estimations based on the 1990 data which includes a sample of mid-level managers. From this information, Hallock and Olson researched why employees would gain incentives for stock-based incentives while addressing why firms supply this option as stock-options sometimes save the firm some capital. In addition to saving capital, firms will see an increase in productivity as according to Hallock and Olson, employees are better motivated when they feel apart of the company they work for. This article will support our research as it details why an employee would accept a stock-based option and how the firm itself is profiting. Evidence taken from this article will help us further understand our topic and provide crucial information to our blog.
Park, S., & Song, M. H. (1995). Employee Stock Ownership Plans, Firm Performance, and Monitoring by outside Blockholders. Financial Management, 24(4), 52. doi: 10.2307/3665950
The Journal article analyzes the effects of employee performance when giving out employee stock ownership as part of an incentive program. In this Study they found a direct correlation between companies overall end of year performance in relation to the inventive program being studied. This article provides strong analytical evidence that can lead one to deduce that employee stock ownership is the best incentive program a company can give it out if it would like to maximize employee performance. They also delve into a hypothesis that the employee performance in this incentive program is strongly correlated to the ownership structure of the firm. This evidence will help our team deduce the overall effects that employee stock options can have on employee performance.
Pendleton, Andrew. Incentives, Monitoring, and Employee Stock Ownership Plans: New Evidence and Interpretations. Wiley Online Library, John Wiley & Sons, Ltd, 15 Sept. 2006, onlinelibrary.wiley.com/doi/full/10.1111/j.1468-232X.2006.00450.x.
This article explains why a company would offer stock plans as individual incentives and as a substitute for direct monitoring. It looks into the effects that it may have on individual performance, and a desired performance outcome. This pretty directly relates to our topic because it covers the same issue. How do stocks as incentives improve performance? This article in particular relates stock incentives as a way to give more trust to employees and encouraging cooperation. This is where OB plays a role in that it directly affects how well people will work and potentially work with each other.