Sorting Effects of Broad-Based Equity Compensation
David Tsui, Marshall Vance (2022) Sorting Effects of Broad-Based Equity Compensation. Management Science
50 Pages Posted: 18 Aug 2018 Last revised: 1 Sep 2022
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 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 that the relation between employees’ perceptions of management’s credibility and voluntary turnover intentions is significantly stronger in the presence of a broad-based equity plan. 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
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