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The Impact of Employee Stock Options on the Evolution of Compensation in the 1990s

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  • Hamid Mehran
  • Joseph Tracy

Abstract

Between 1995 and 1998, actual growth in nominal compensation per hour (CPH) accelerated from approximately 2 percent to 5 percent. Yet as labor markets continued to tighten in 1999, the growth in CPH paradoxically slowed. In this article, we attempt to solve this aggregate wage puzzle by exploring whether changes in pay structure - specifically, the increased use of employee stock options - can account for the behavior of CPH in the late 1990s. CPH reflects employee stock options on the date they are realized rather than on the date they are granted. When we recalculate CPH growth to reflect the value of current stock options when they are granted - rather than their value when they are realized - we find that our adjusted CPH measure accelerated in each year from 1995 to 1999.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8353.

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Date of creation: Jul 2001
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Handle: RePEc:nbr:nberwo:8353

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  1. John V. Duca, 1998. "The new labor paradigm: more market-responsive rules of work and pay," Southwest Economy, Federal Reserve Bank of Dallas, issue May, pages 6-8, 12.
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  13. Huddart, Steven & Lang, Mark, 1996. "Employee stock option exercises an empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 21(1), pages 5-43, February.
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