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Stock Option Exercise and Gift Exchange Relationships: Evidence for a Large US Company

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  • Peter Cappelli
  • Martin J. Conyon

Abstract

We investigate gift exchange relationships in real jobs, making use of a field quasi-experiment associated with the exercise of stock options for roughly 4500 managers in a large public company. In this company, option grants are set equally for all employees within occupational categories, and financial markets set the price at which the options are ultimately exercised. We assert that the considerable variation that we observe across employees and over time in profits from those sales is beyond the control of the individual employee and can be thought of as effectively randomized. We also assert that employees perceive the profit they receive from exercising these options at least in part as the equivalent of a gift: Higher profits in turn cause them to reciprocate with better job performance in the subsequent period. We find significant and economically meaningful positive relationships between the variation in profit per share of the options sold and standard measures of subsequent job performance for individual employees. These effects exist in real jobs and persist over long periods, extending previous studies. Non-parametric and parametric fixed effects models, other controls for sample heterogeneity, and alternative specifications address possible concerns about the randomization assumption and associated statistical issues.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16814.

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Date of creation: Feb 2011
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Handle: RePEc:nbr:nberwo:16814

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  1. John List, 2006. "The behavioralist meets the market: Measuring social preferences and reputation effects in actual transactions," Natural Field Experiments 00300, The Field Experiments Website.
  2. Huddart, Steven, 1994. "Employee stock options," Journal of Accounting and Economics, Elsevier, vol. 18(2), pages 207-231, September.
  3. Sandra Maximiano & Randolph Sloof & Joep Sonnemans, 2007. "Gift Exchange in a Multi-Worker Firm," Economic Journal, Royal Economic Society, vol. 117(522), pages 1025-1050, 07.
  4. Arkes, Hal R. & Joyner, Cynthia A. & Pezzo, Mark V. & Nash, Jane Gradwohl & Siegel-Jacobs, Karen & Stone, Eric, 1994. "The Psychology of Windfall Gains," Organizational Behavior and Human Decision Processes, Elsevier, vol. 59(3), pages 331-347, September.
  5. Ernst Fehr & Lorenz Goette & Christian Zehnder, 2008. "A behavioral account of the labor market: the role of fairness concerns," IEW - Working Papers 394, Institute for Empirical Research in Economics - University of Zurich.
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