Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/122026
Authors: 
Zabojnik, Jan
Year of Publication: 
2014
Series/Report no.: 
Queen's Economics Department Working Paper 1325
Abstract: 
Standard principal-agent theory predicts that large firms should not use employee stock options and other stock-based compensation to provide incentives to non-executive employees. Yet, business practitioners appear to believe that stock-based compensation improves incentives, and mounting empirical evidence points to the same conclusion. This paper provides an explanation for why stock-based incentives can be effective. In the model of this paper, employee stock options complement individual measures of performance in inducing employees to invest in firm-specific knowledge. In some situations, a contract that only consists of options is more efficient than a contract based solely on individual performance.
Subjects: 
Stock-based Compensation
Employee Stock Options
Optimal Incentive Contracts
Firm-specific Knowledge
JEL: 
D86
J33
M52
Document Type: 
Working Paper

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