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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.

Suggested Citation

  • Hamid Mehran & Joseph Tracy, 2001. "The Impact of Employee Stock Options on the Evolution of Compensation in the 1990s," NBER Working Papers 8353, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:8353
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    1. repec:pal:jorsoc:v:54:y:2003:i:12:d:10.1057_palgrave.jors.2601639 is not listed on IDEAS

    More about this item

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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