Stock Option Exercise and Gift Exchange Relationships: Evidence for a Large US Company / Peter Cappelli, Martin J. Conyon.

By:

Cappelli, Peter

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w16814.Publication details: Cambridge, Mass. National Bureau of Economic Research 2011.Description: 1 online resource: illustrations (black and white)Subject(s):

J33 - Compensation Packages • Payment Methods

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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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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
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Previous	nber w16811 The Impact of National Health Insurance on Birth Outcomes: A Natural Experiment in Taiwan /	nber w16812 Does Tax Policy Affect Executive Compensation? Evidence from Postwar Tax Reforms /	nber w16813 The Returns to the Brain Drain and Brain Circulation in Sub-Saharan Africa: Some Computations Using Data from Ghana /	nber w16814 Stock Option Exercise and Gift Exchange Relationships: Evidence for a Large US Company /	nber w16815 Pride Goes Before a Fall: Federal Reserve Policy and Asset Markets /	nber w16816 Learning, Large Deviations and Rare Events /	nber w16817 Single-Sex Schools, Student Achievement, and Course Selection: Evidence from Rule-Based Student Assignments in Trinidad and Tobago /	Next

February 2011.

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.