Sorting Effects of Broad-Based Equity Compensation

40 Pages Posted: 18 Aug 2018 Last revised: 4 Mar 2020

See all articles by David Tsui

David Tsui

University of Southern California - Marshall School of Business

Marshall D. Vance

Virginia Tech

Date Written: February 23, 2020

Abstract

We examine the sorting role of broad-based equity pay using detailed employee-level data. We propose trust in management as an important and beneficial characteristic over which equity pay sorts employees, as such pay typically leaves employees with concentrated positions in employer stock and therefore more exposed to the outcomes of management’s actions. Consistent with this conjecture, we find a negative relation between equity pay and retention among employees who are less trusting of management, but no relation among more trusting employees. Our findings provide insight into how broad-based equity pay can improve firm performance despite theoretical challenges regarding its incentive effects.

Keywords: employee compensation, equity compensation, retention, sorting, turnover

JEL Classification: G30, J33, J41, J63, M41, M52

Suggested Citation

Tsui, David and Vance, Marshall D., Sorting Effects of Broad-Based Equity Compensation (February 23, 2020). Available at SSRN: https://ssrn.com/abstract=3234108 or http://dx.doi.org/10.2139/ssrn.3234108

David Tsui

University of Southern California - Marshall School of Business ( email )

3660 Trousdale Parkway
Los Angeles, CA 90089
United States

Marshall D. Vance (Contact Author)

Virginia Tech ( email )

Blacksburg, VA 24061
United States

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