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Equity-Based Compensation for Employees: Firm Performance and Determinants


  • I thank William T. Moore (the editor), R. Charles Moyer (the referee), Ajay Khorana, Eric Chang, Edward Nelling, Sanjiv Sabherwal, Kewei Hou, Marc Zenner, John Core, and seminar participants at the Georgia Institute of Technology, the Western Finance Association meetings, the Financial Management Association meetings, the Eastern Finance Association meetings, and the Southern Finance Association meetings for helpful comments and suggestions. I also thank Jonathon K. Cook with Fidelity Investments for helping me obtain proxy statements and annual reports.


I examine the effect of employee equity-based compensation (EBC) on firm performance and the determinants of EBC. Using two samples, I find that firms have come to rely more heavily on EBC than in the past. For both samples, I document a significant, positive relation between Tobin's q and the percentage of employee compensation that is equity based. For accounting returns, I find a positive relation with the earlier sample. However, for the later sample I find that greater use of EBC leads to lower levels of future accounting returns. I also find that the determinants of the proportion of EBC are different between the two samples.

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