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Equity-Based Compensation for Employees: Firm Performance and Determinants

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  • Melissa B. Frye

Abstract

I examine the effect of employee equity-based compensation (EBC) on firm performance and the determinants of EBC. Using two samples, I find that firms have come to rely more heavily on EBC than in the past. For both samples, I document a significant, positive relation between Tobin's "q" and the percentage of employee compensation that is equity based. For accounting returns, I find a positive relation with the earlier sample. However, for the later sample I find that greater use of EBC leads to lower levels of future accounting returns. I also find that the determinants of the proportion of EBC are different between the two samples. 2004 The Southern Finance Association and the Southwestern Finance Association.

Suggested Citation

  • Melissa B. Frye, 2004. "Equity-Based Compensation for Employees: Firm Performance and Determinants," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 27(1), pages 31-54.
  • Handle: RePEc:bla:jfnres:v:27:y:2004:i:1:p:31-54
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    Cited by:

    1. Ming-Yuan Chen, 2010. "The Components Of Managerial Pay Adjustments And Their Impact On Firm Performance," Manchester School, University of Manchester, vol. 78(6), pages 582-608, December.
    2. Kristina Minnick & Mengxin Zhao, 2009. "Backdating And Director Incentives: Money Or Reputation?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 32(4), pages 449-477.
    3. Kemp-Benedict, Eric, 2015. "New ways to slice the pie: Span of control and wage and salary distribution within firms," MPRA Paper 77072, University Library of Munich, Germany, revised 24 Feb 2017.
    4. Amit Saini & Kelly Martin, 2009. "Strategic Risk-Taking Propensity: The Role of Ethical Climate and Marketing Output Control," Journal of Business Ethics, Springer, vol. 90(4), pages 593-606, December.
    5. Nien-Chi Liu & Ming-Yuan Chen & Mei-Ling Wang, 2016. "The Effects of Non-Expensed Employee Stock Bonus on Firm Performance: Evidence from Taiwanese High-Tech Firms," British Journal of Industrial Relations, London School of Economics, vol. 54(1), pages 30-54, March.
    6. Alexander Brüggen & Jens Zehnder, 2014. "SG&A cost stickiness and equity-based executive compensation: does empire building matter?," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 25(3), pages 169-192, December.
    7. Alireza Vafaei & Kamran Ahmed & Paul Mather, 2015. "Board Diversity and Financial Performance in the Top 500 Australian Firms," Australian Accounting Review, CPA Australia, vol. 25(4), pages 413-427, December.
    8. Hsiang-Lan Chen & Wen-Tsung Hsu & Yen-Sheng Huang, 2010. "Top management team characteristics, R&D investment and capital structure in the IT industry," Small Business Economics, Springer, vol. 35(3), pages 319-333, October.
    9. Denis, David J. & Hanouna, Paul & Sarin, Atulya, 2006. "Is there a dark side to incentive compensation?," Journal of Corporate Finance, Elsevier, vol. 12(3), pages 467-488, June.
    10. Chen, Ming-Yuan, 2010. "Managerial pay adjustments: Decomposition and impact on firm productive efficiency," Economic Modelling, Elsevier, vol. 27(1), pages 196-207, January.
    11. Hanen Maalej & Mohamed Triki, 2008. "Déterminants de la pratique de l'actionnariat salarié dans les entreprises françaises," Post-Print halshs-00525419, HAL.
    12. Lin Guo & Abu Jalal & Shahriar Khaksari, 2015. "Bank executive compensation structure, risk taking and the financial crisis," Review of Quantitative Finance and Accounting, Springer, vol. 45(3), pages 609-639, October.
    13. Djaoudath Alidou, 2011. "Les augmentations de capital réservées aux salariés en France - Employee Equity Issue:Evidence from France," Working Papers CREGO 1110603, Université de Bourgogne - CREGO EA7317 Centre de recherches en gestion des organisations.
    14. Kemp-Benedict, Eric, 2015. "A middle-manager model of wage and salary distribution within firms," MPRA Paper 64303, University Library of Munich, Germany.
    15. repec:hur:ijaraf:v:5:y:2015:i:1:p:15-22 is not listed on IDEAS
    16. Saira Hassan, 2016. "Impact of HRM Practices on Employee’s Performance," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 6(1), pages 15-22, January.
    17. Koustubh Kanti Ray, 2016. "Employee stock option plan and firm performance: A quantile regression approach," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 6(6), pages 152-166, June.
    18. Tetteh, Rebecca & Mohammed, Safura & Ahmed Azumah, Ayisha, 2017. "What is the effect of wages and supervision on productivity? The perspective of Sunyani Technical University staff," MPRA Paper 81473, University Library of Munich, Germany.
    19. Joanne Oxley & Gurupdesh Pandher, 2016. "Equity-based incentives and collaboration in the modern multibusiness firm," Strategic Management Journal, Wiley Blackwell, vol. 37(7), pages 1379-1394, July.
    20. Cecile Cezanne-Sintes, 2008. "Modern corporate changes: reinstating the link between the nature, boundaries and governance of the firm," International Review of Applied Economics, Taylor & Francis Journals, vol. 22(4), pages 447-461.
    21. repec:hur:ijarbs:v:7:y:2017:i:7:p:649-667 is not listed on IDEAS
    22. mamatzakis, em, 2014. "The effect of corporate governance on the performance of US investment banks," MPRA Paper 60198, University Library of Munich, Germany.

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