The Accounting Review Vol. 90 No. 4 2015
Selection Benefits of Stock-Based Compensation for the Rank-and-File
Abstract
We investigate a potential selection benefit of stock-based compensation for rank-and-file employees, whose pay under this compensation form is insensitive to their individual efforts. We use a laboratory experiment to demonstrate that individuals with higher levels of dispositional optimism are more likely to choose compensation that is contingent on a company's future stock price than to choose fixed pay, even after controlling for the individual's risk preferences. Furthermore, compared to participants selecting fixed pay, those selecting stock-based compensation also perform better on a challenging problem-solving task, a result that we show is due to their higher levels of dispositional optimism. Collectively, we demonstrate that stock-based compensation can have productivity-enhancing effects, even if stock prices are completely insensitive to individual efforts. In doing so, we provide a partial explanation for the puzzling prevalence of stock-based compensation plans at the rank-and-file level and contribute to the broader contract-selection literature.
- DOI
- 10.2308/accr-50962
- Volume
- 90
- Issue
- 4
- Pages
- 1497-1516
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref