the psychology of employee stock options: …...ownership behavior, and intentions to remain with...
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THE PSYCHOLOGY OF EMPLOYEE STOCK OPTIONS:
TESTING A NEW CONCEPTUAL MODEL
Katherine J. Klein
The Wharton School, University of Pennsylvania
Edward J. Carberry
Rotterdam School of Management, Erasmus University
Mathis Schulte
HEC Paris
DRAFT
February 2011
We welcome your comments and suggestions.
Please do not cite or quote without permission of the authors.
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ABSTRACT
Despite their continued prevalence, broad-based stock option plans through which companies
provide stock options to all or the majority of their employees have been the subject of very little
attention by scholars in organizational behavior and human resource management. Investigating
the effects of such plans, we propose and test a conceptual model of the psychology of employee
stock options. Our findings, based on the survey responses of over 1,000 employees of eight
publicly traded companies, suggest that employees are most enthusiastic about their stock
options when they expect their options to bring them financial gain; when they attribute their
company‟s provision of options to their company‟s desire to share the wealth with employees;
and when they perceive that they understand how stock options work. Controlling for numerous
demographic variables, job characteristics, and work attitudes, we find that employee stock
option enthusiasm is significantly positively related to organizational commitment, work hours,
ownership behavior, and intentions to remain with the company. Employees‟ expectations of
financial gain from their options and perceived understanding of options are shaped, our findings
suggest, by numerous factors including the nature and extent of their stock options holdings and
their history of stock options exercise.
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INTRODUCTION
In the last two decades, stock options have emerged as a source of personal wealth for some,
disappointment for others, and a topic of sometimes contentious debate. During this period, both
public and scholarly attention have focused primarily on the provision of stock options to CEO‟s
and other corporate executives (e.g., Sanders, 2001; McGuire, & Matta, 2003; Certo et al., 2003).
Proponents have argued that stock options help overcome the agency problem (Jensen &
Meckling, 1976) inherent in the separation of ownership and control of the firm (Berle & Means,
1932) because they align executives‟ and shareholders‟ interests, motivating executives to focus
on maximizing share value. Critics have charged that options cause executives to engage in
inappropriate risk-taking and, in some cases, unethical manipulation of stock prices and option
arrangements (Bebchuk and Fried, 2004). The provision of stock options to lower-ranking
employees has, in contrast, received limited attention in both the academic and popular press.
And yet, the provision of stock options to non-executive employees is not uncommon. The latest
available figures from the General Social Survey in 2006 reveal that about 9% of employees in
the private sector have stock options from their employers (Kruse, Blasi, and Park, 2010). The
National Center for Employee Ownership estimates that approximately 3,000 companies have
such plans, providing stock options to approximately 10 million employees. How do employees
respond to the stock options? Do stock options motivate employees to think and act like owners?
To work harder? To stay at the company longer? Researchers have yet to answer these questions.
To begin to answer these questions, we draw on theory and research in organizational
psychology, human resources management, and economics to present a conceptual and empirical
analysis of the psychology of employee stock options. At the core of our conceptual model is
employee stock options enthusiasm – a construct describing the extent to which employees
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regard their options with excitement, gratitude, and appreciation or, conversely, with indifference
or, worse, disappointment. Our theoretical model, depicted in Figure 1, highlights the
expectations, attributions, and perceptions that may foster stock options enthusiasm and the
attitudes and behaviors that result from such enthusiasm. In brief, we argue that employees are
most enthusiastic about their stock options when they expect their options to provide them with
substantial financial benefits; when their attributions about their employer‟s reasons for awarding
options to employees are benign rather than cynical; and when they believe that they understand
how stock options work. We test our predictions regarding the antecedents and consequences of
stock options enthusiasm – and additional predictions regarding the antecedents of expected
financial gain from stock options and of perceived understanding of stock options – in a cross-
sectional survey study of approximately 1,000 employees of eight publicly-traded companies that
distribute options to the majority of their employees.
Our findings contribute to the literatures on employee stock options, employee benefits,
and employee attitudes by shedding new light on the psychology of stock options – that is, on the
experiences, expectations, attributions, and perceptions that may shape employees‟ emotional,
attitudinal, and behavioral responses to stock options. Our findings document the potential
influence of stock options on employee commitment, effort, and retention and invite new
attention to the role of stock options and other financial benefits in shaping employee attachment
and work behavior. Further, our findings may prove of help to organizational leaders who,
reflecting on the ups and downs of the stock market in recent years, must decide whether to
begin or cease offering stock options to their employees.
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CONTEXT AND EXISTING LITERATURE
How Broad-Based Stock Options Work
A stock option gives an employee the right to buy a certain number of shares in the company for
a fixed price for a certain number of years. The fixed price of each share (also called the grant
price, exercise price, or strike price) is typically the market price of the stock on the day on
which the grant is issued. Stock options typically vest over a period of four years (that is, 25%
per year) and typically expire ten years after the options are fully vested. For example, a
company might give an employee 200 stock options – that is, the right to purchase 200 shares of
the company‟s stock – at the fixed price of $10 per share (the market price of the stock on the
day options are issued). Once the employee‟s options are vested but not expired, if the
company‟s stock is trading for more than the grant price of the options (for example, $20 per
share), the employee may buy the shares – that is, exercise the options – for $10 a share and then
sell them at a profit (in this example, for $20 a share, pocketing the difference, or $2000). When
a company‟s stock is trading for more than the grant price of an employee‟s options, the
employee‟s options are “in-the-money.” When a company‟s stock is trading for less than the
grant price of an employee‟s options (that is, less than $10 in this example), the employee‟s
options are worthless – that is, “out-of-the-money” or “underwater.” Broad-based stock option
plans are defined differently by different authors (NCEO, 2007; Oyer & Schaefer, 2005). For our
purposes, stock options are “broad-based” if the company distributes options to at least the
majority of its non-executive employees (although the companies we studied provided options to
all of their full-time employees). Through such plans, employees may receive stock options
when they are hired and on an on-going basis (e.g., once a year).
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Broad-based stock options, like other forms of profit-sharing (Kruse, 1993; Weitzman
and Kruse, 1990), gainsharing (Gomez-Mejia, Welbourne, & Wiseman, 2000) and employee
ownership (Rosen, Case, & Staubus, 2005; Blasi, Konte, & Kruse, 1996), provide a means for
employees to profit from their company‟s performance. But, they are distinctive in four ways
that are likely to influence employees‟ perceptions of and responses to stock options. First,
whereas profit-sharing and gainsharing plans offer employees financial gains from increases in
their company‟s productivity, sales, or profits, broad-based stock option plans allow employees
to benefit from increases in their company‟s stock price – an indicator of company performance
that is likely to be perceived by many employees as less amenable to their direct influence than
company productivity, sales, or even profit, but perhaps of greater potential benefit to their
pocketbooks (if their company‟s stock soars on the market).
Second, relative to Employee Stock Ownership Plans (ESOPs), which hold company
stock in a retirement trust for employees, broad-based stock options, offer the potential for a
quick payout to employees, provided employees‟ options, once vested, are in-the-money.
Employees in an ESOP must wait until they retire or leave the company to receive their ESOP
shares. Employees with broad-based options may, in contrast, exercise their vested options at any
time, long before retiring or leaving the company. Although employees may exercise their stock
options and hold onto their shares of company stock, employees typically sell their shares of
company stock – gaining a cash infusion – as soon as they exercise their options (Hall &
Murphy, 2003).
Third, and also relative to ESOPs, the upside of stock options – the prospect of a quick
payout – is matched by a dark side: the possibility that an employee‟s options may become
“underwater” – and remain so for months or years. Stock holdings in an ESOP may decline in
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value, but are never entirely worthless unless the company goes out of business. Underwater
options, in contrast, are worthless when the strike price of vested options exceeds the company‟s
current stock price. Options may thus prove exciting when the company‟s stock in on the rise,
but sorely disappointing when the company‟s stock is in decline.
And, finally, fourth, employees who have options must show some proactivity – making
and implementing the decision when to exercise how many of their options – to realize the
financial benefits that options may offer. In contrast, employees who are the beneficiaries of
other forms of shared capitalism (gainsharing, profit-sharing, ESOPs) automatically receive the
financial benefits of such plans, as employees covered by these plans; they need take no action to
do so. Thus, employees of a single company who have received the same number of options at
the same strike price may nevertheless experience different financial rewards from their options
as a function of their differing stock option exercise decisions.
Together, these factors are likely to shape the psychology of stock options. Any
gainsharing, profit sharing, or employee ownership program invites employees to consider the
financial benefits they may gain as a function of their company‟s performance. But, options
focus employees‟ attention on the near term and on the stark contrast of options in-the-money
(worth something) or underwater (worth nothing). Further, the complexity of stock options and
the necessity of employee proactivity in exercising options suggests the importance of employee
understanding of stock options in shaping both employees‟ appreciation of options and their
ability to make good use of them. Finally, the relatively tenuous link between employee effort
and the company‟s performance on the stock market and the prevalence of stock option awards
to executives may invite employees to ponder why their company is giving them options. For
these reasons, our conceptual model highlights the potential influence of employees‟ (a)
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expected financial gain, (b) perceived understanding of stock options, and (c) attributions
regarding the company‟s provision of options to employees in shaping employees‟ stock options
enthusiasm. Before presenting our conceptual model, however, we offer a brief review of studies
of broad-based stock options within the economics literature.
Employee Stock Options: A Brief Overview of Studies in the Economics Literature
Management scholars have engaged in very little research and theory building regarding the
effects of employee stock options on employee attitudes and behaviors. The topic has garnered
more attention within the economics literature (e.g., Oyer, & Schaefer, 2005; Core, & Guay,
2001; Ittner et al. 2003). Economists hypothesize that stock options may enhance employee
motivation, employee attraction and sorting, and employee retention. Oyer and Schaefer, note
that, “linking an employee‟s wealth to the value of the firm might overcome agency problems
and motivate the employee to take actions that are in the firm‟s interest” (2005: 100). Describing
the predicted effects of options on employee attraction and sorting, Ittner, Lambert, and Larcker
(2003) suggested that options may be particularly attractive to employees who are low in risk
aversion. Indeed, employees who are low in risk aversion and high in optimism (Oyer &
Schaefer, 2005) might trade the certainty of greater salary for the potential gain from stock
options. Finally, options may enhance employee retention by encouraging employees to stay
with the firm at least until their options are vested and in-the-money (Core & Guay, 2001; Ittner
et al., 2003; Oyer & Schaefer, 2005).
From the perspective of management scholarship, economists‟ conceptual and empirical
analyses are helpful, but limited in two respects. First, economists have little explored the
conditions under which and the mechanisms through which stock options might enhance
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motivation, attraction, and retention. Stock options are unlikely to be equally meaningful to all
employees under all circumstances. But, who are the employees most likely to find options
meaningful and motivating, and under what conditions does their enthusiasm for options peak?
The economics literature does not address questions of this type, which focus on the individual-
level dynamics of stock options. Second, economists have tested their hypotheses by examining
the company-level antecedents (or correlates) of stock option plan characteristics, not the
individual-level consequences (or correlates) of stock option holdings. Thus, for example, Core
and Guay argued that if stock options are indeed motivating for employees, then “firms with
greater monitoring costs and greater growth options (proxied by firm size, the book-to-market
ration, and R&D expense” (2001: 272) will be more generous in their option grants to non-
executive employees than will be firms with lower monitoring costs and lower growth options.
Core and Guay (2005) interpreted their findings that option grants are larger in firms
experiencing growth opportunities and in firms of large size as “evidence that firms grant non-
executive options for … incentive [that is, motivational] purposes” (2001: 284). And yet, Core
and Guay‟s findings in fact provide no evidence that stock options enhance employee
motivation. Core and Guay‟s conclusions, and the conclusions of other economics studies of a
similar design (e.g., Oyer & Schaefer, 2005; Ittner et al., 2003; Kedia & Mozumdar, 2002) rest
on economic indicators of psychological and behavioral processes that management scholars
may question. Extending and building on the economics literature, we thus draw on theory and
findings from organizational psychology, and human resources management to advance and test
hypotheses regarding the individual-level effects of stock options on employee attitudes and
behaviors.
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THE PSYCHOLOGY OF STOCK OPTIONS
Employees who receive stock options are likely to vary in their experiences, expectations, and
understanding of stock options. For those who are most enthusiastic about the options that they
have received, options are a salient and important benefit. For those who are less enthusiastic,
options represent an over-rated employee benefit. Our conceptual model describes likely
antecedents and consequences of employees‟ stock options enthusiasm. We first describe the
predicted consequences of stock options enthusiasm.
Consequences of Stock Options Enthusiasm
For three reasons, employees who are most enthusiastic about their options are likely, we posit,
to display more positive work attitudes and behaviors – greater organizational commitment,
greater ownership behavior, longer work hours, and weaker turnover intentions – than employees
who are less enthusiastic about their options. First, employees who are enthusiastic about their
options are likely to see in their options a powerful signal that they, their senior management,
and their fellow coworkers share a common fate. Employees who hold this view are likely to
consider their company‟s success to be their own personal success. Such perceptions – of
common interests and shared outcomes – are key drivers of the experience of organizational
identification (Ashforth & Mael, 1989; Rousseau, 1998). Second, enthusiastic employees are
likely to consider their options to be a special – not entirely expected or run-of-the-mill – benefit.
Grateful for their options, these employees are likely to view their exchange relationship with
their company in positive terms (Rousseau, 1995); as their company has been good to them, so
they, given the norms of reciprocity in exchange relationships (Blau, 1964; Dabos & Rousseau,
2004) would like to be good to their company. And, third, employees who are enthusiastic about
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their options are likely to perceive that their own goals and interests are well aligned with those
of the company; what is good for their company is good for them (Welch, 2002; Brandes,
Dharwadkar, & Lemesis, 2003). Accordingly, their options enthusiasm is likely to focus their
efforts and attention on their company‟s performance on the stock market. Conversely,
employees who lack such enthusiasm may regard their options as confusing and complex, of
limited interest or relevance, or even as a management ploy designed to mollify employees at
little expense or effort to the company. For these employees, options are unlikely to engender
identification, gratitude, or perceived alignment.
Employees who feel a sense of identification with their company, gratitude for its options
practices, and perceived alignment with its goals are likely to feel loyal and commited to their
company and wish to stay in its employment (Hom & Griffith, 1995; O‟Reilly & Chatman, 1986;
Rhoades, Eisenberger, & Armeli, 2001; Williams, McDaniels, & Nguyen, 2006). Further, these
employees are likely to be motivated to contribute to their company‟s success, working long
hours for the company. Finally, their interest in their company‟s performance in the stock market
may inspire them to behave like owners, evincing interest in their company‟s performance on the
stock market. They may check their company‟s stock price frequently, for example, or seek and
read information regarding their company‟s performance relative to its competitors. We thus
predict:
H1: Employee stock options enthusiasm is positively related to (a) organizational
commitment; (b) ownership behavior; (c) hours of work; and negatively related to (d)
turnover intentions.
Antecedents of Stock Options Enthusiasm
Expected financial gain. Stock options offer employees a thin promise, a possibility: You just
might make a lot of money. Employees who in fact expect to make a lot of money through their
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options are most likely to be enthusiastic about their options. They are filled with hope and
anticipation. Further, they have the added pleasure of association with a company they expect to
be successful and know to be generous; they anticipate basking financially and psychologically
in its glow. Conversely, for employees who expect few or no such financial gains, options are a
disappointment, engendering little or no enthusiasm or excitement. Numerous studies of pay
systems, executive stock options, and ESOPs document the effects of generous financial rewards
and/or the expectation of such rewards on employee attitudes (e.g., Klein, 1987; Buchko, 1992;
Wagner, Parker, & Christiansen, 2003; Kuvaas, 2006; Worley, Bowen, Lawler, 1992). Building
on these findings, we predict:
H2a: Expected financial gain from options is positively related to employee stock options
enthusiasm.
The relationship between expected financial gain and employee stock options enthusiasm
may, however, be nonlinear. More specifically, the strength of the relationship may decrease at
higher levels of expected financial gain. An employee who expects to gain nothing from his or
her stock options is likely to respond with far less enthusiasm to his or her options than an
employee who expects to gain $1,000, for example. But the difference in enthusiasm is likely to
be much smaller between an employee who expects $15,000 from his or her options and an
employee who expects $16,000. In both cases, the difference in expected gains is the same
($1,000). But a difference of $1,000, we argue, has a different perceived value for employees
depending on the level of expected financial gain. This argument is in line with the value
function of prospect theory which suggests that the marginal value of losses and gains tends to
decrease with their magnitude (Kahneman & Tversky, 1979). We thus hypothesize:
H2b: The relationship between expected financial gain from options and employee
options enthusiasm is concave. That is, expected financial gain from options is more
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strongly positively related to employee stock options enthusiasm at low versus high levels
of expected financial gain.
Perceived understanding of stock options. Options are technically complex. Employees
who are unfamiliar with the language and workings of options and of the stock market may find
the topic of options abstruse and daunting. Studies of pay satisfaction suggested that employees
need to understand how a pay system works in order to be satisfied with it (Lawler & Hackman,
1969; Brown & Huber, 1992). Employees‟ enthusiasm for stock options may be tempered by
their uncertainties regarding how best to manage their options: What is the real value of their
vested and unvested options? When is the right time to exercise their options? Given the number
and strike price of their unvested options, should they forgo an attractive job offer from another
company? Employees who lack confidence in their answers to these and similar questions may
find the topic of options more tedious or intimidating than interesting and exciting. Conversely,
employees who are confident of their understanding of options are more likely to find both the
topic and the very presence of their options engaging. We thus hypothesize:
H3: Perceived understanding of stock options is positively related to stock options
enthusiasm.
Employee attributions: Why does the company offer employees stock options?
Organizational leaders implement a wide range of initiatives in an effort to shape stakeholders‟ –
including employees‟ – evaluations of their organization‟s legitimacy, trustworthiness, and
rectitude (Elsbach, 2003). Stakeholders‟ attributions about organizational leaders‟ motives in
undertaking such initiatives, especially ones open to multiple and potentially negative
interpretations, are likely to determine whether stakeholders respond to such initiatives with
praise for and trust in the organization, or with suspicion and cynicism (Dean, Brandes, &
Dharwadkar, 1998; Tyler, 2003; Yoon, Gurham-Canli, & Schwartz, 2006). For example,
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corporate social responsibility (CSR) activities are more likely to improve stakeholders‟ image of
a company if stakeholders‟ attribute the company‟s CSR activities to the company‟s sincere
desire to address an important social issue (e.g., environmental conservation) rather than to the
company‟s desire to improve its image among consumers (Yoon et al., 2006).
Extrapolating from theoretical and empirical research on employees‟ and other
stakeholders‟ attributions regarding the motives behind key organizational initiatives, we posit
that employees‟ attributions regarding their company‟s motives in allocating stock options to
employees may influence employees‟ stock options enthusiasm. To the extent that employees
perceive that their company‟s broad-based stock options plan reflects the company‟s deep
commitment to sharing ownership and the financial benefits of the company‟s success with
employees, employees are likely to be enthusiastic about their options. Under these
circumstances, employees perceive broad-based options to be emblematic of the company‟s
goodwill and generosity. Consistent with this reasoning, Klein (1987) found that employees were
most satisfied with their company‟s employee stock ownership plan (ESOP) when management
reported that employee ownership was a central element of the company‟s management
philosophy. Conversely, to the extent that employees attribute ulterior motives to their company
– specifically that the company seeks to gain employee acceptance of below-market wages and
salaries by offering employees stock options – they are likely to respond far less enthusiastically
to stock options. Employees who make such attributions are likely to view their company‟s
option plan as an indication of the company‟s disrespect for or manipulation of employees. We
thus hypothesize:
H4(a): Employee attributions that the company gives employees options because of its
commitment to sharing the wealth with employees is positively related to employee stock
options enthusiasm, whereas (b) employee attributions that the company gives employees
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stock options to gain employee acceptance of below-market pay is negatively related to
employee stock options enthusiasm.
Below, we build on theory and prior research to propose additional hypotheses regarding
the antecedents of expected financial gain and of perceived stock options understanding.
Antecedents of Expected Financial Gain: Present, Past, and Future
To determine the expected – that is, future – financial benefits of a package of stock options,
economists turn to the Black-Scholes model, a complex formula that estimates the „true‟ value of
an option by taking into account various factors including the volatility of the stock price and the
remaining time until the option expires. There is little doubt, however, that the vast majority of
employees are far more rudimentary in their calculations of the expected financial benefits of
their options. In the absence of the time and knowledge needed to calculate the Black-Scholes
value of an option, employees may resort to less sophisticated, more intuitive approaches,
reflecting the influence of common cognitive heuristics and beliefs (Tversky & Kahneman;
1974).
Company performance. Although economists note that a company‟s past performance on
the stock market is not a valid predictor of the company‟s future performance on the stock
market, employees may be less sophisticated in their reasoning. Consistent with Benartzi‟s
(2001) recent examination of employees‟ discretionary allocation of 401(k) accounts to company
stock, employees may extrapolate excessively from past performance, concluding that a
company‟s past performance on the stock market is representative of future performance. Heath,
Huddart, and Lang‟s (1999) and Core and Guay‟s (2001) studies of stock options exercise
suggest that employees are particularly sensitive to the performance of their company‟s stock
over the past year. We thus hypothesize:
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H5: The performance of a company’s stock (increase or decrease in company stock
price) over the past year is positively related to expected financial gain from stock
options.
Current options portfolio. An employee‟s financial gain expectations may, however,
reflect not only his or her company‟s performance on the stock market over the past year, but
also the employee‟s assessment of his or her unique options portfolio. Perhaps the simplest
calculation an employee might make is that, other things being equal, more is better: Having
more options to buy a company‟s stock at a reduced price is better than having fewer options to
do so because every option has the potential to generate a positive return. Research on money
illusions has shown that people are often more affected by the nominal value than the real value
of money (e.g., Safir, Diamond, & Tversky, 1997; Ranyard et al., 2005). A more sophisticated
approach is to consider the strike price of the options. Options whose strike price is below the
current stock price (underwater or out-of-the-money) are less valuable than are options whose
strike price is above the current strike price (in-the-money). Indeed, Dunford and his colleagues
(2005) have documented executives‟ sensitivity to this calculation; executives‟ job search
activities increased dramatically when more than 50% of their stock option portfolios were
underwater. Finally, a still more sophisticated, if not entirely economically rational, approach
might be to assess the dollar value of one‟s vested and unvested options: If one could and did
exercise and sell one‟s vested and unvested options at the company‟ current stock price, how
much money would one make? Consistent, again, with the work on employees‟ overreliance on
past and present values (Heath et al, 1999; Core & Guay, 2001; Benartzi, 2001), this value may
provide an anchoring point for extrapolation and estimation of future gains. We thus predict:
H6: The perceived current value of an employee’s stock options portfolio, as reflected in
(a) the number of options held, (b) the proportion of options in-the-money, and (c) the
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money an employee would earn if he or she could exercise his or her options at the
current time, is positively related to the employee’s expected financial gain from options.
Prior options experiences. Employees‟ expectations of financial gain from options may
also be shaped by their prior experiences with options. Employees who have earned money by
exercising options for their company‟s stock in the past may extrapolate from their prior options
earnings. Those who have earned the most in the past are likely to be most confident regarding
future earnings. Conversely, those who have seen meager earnings in the past may have lower
expectations of future earnings. Finally, those who have never exercised options within the
company may also hold relatively low expectations of future gain; having never before
experienced an options windfall, they may have relatively modest expectations of future gain.
We thus hypothesize:
H7(a): An employee’s prior experience with stock options within the company – as
reflected in (a) having exercised and cashed in options within the company and, more
specifically (b), the value of his or her prior earnings from exercising and cashing in
company stock options – is positively related to the employee’s expected financial gain
from options.
Influence on and expectations of future company performance on the stock market.
Employees‟ expectations of the money they will make from their options may also be shaped by
their predictions of their company‟s future performance on the stock market; the greater
upcoming increases in the price of the company‟s stock, the greater employees‟ likely earnings
from options. Employees who perceive that they and their fellow employees can influence the
price of their company‟s stock are likely to be most optimistic regarding the performance of their
company‟s stock on the market and, thus, most optimistic regarding the gains they will receive
from their options. From the perspective of expectancy theory (Vroom, 1964), these employees
are high in expectancy; they believe that if they try hard, they can achieve the performance (here,
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the company stock price) that they desire. Although individual or collective employee influence
over the performance of company stock may be limited, companies establish executive and
employee stock option plans at least in part in the interest of inspiring executives and employees
to work hard to enhance the performance of their company‟s stock (Brandes et al., 2003). We
hypothesize in sum:
H8: Employee perceptions of individual and collective employee influence over the future
price of company stock on the market are positively related to expected financial gains
from options.
Finally, employees who expect their company‟s stock price to rise over the coming year
are likely, of course, to be enthusiastic about their options. Employees may have various reasons
for developing optimistic expectations about the company‟s future stock price. Some employees
may be bullish on the company or, more generally, on the stock market as a whole. Some
employees may have inside information that bolsters their confidence in the company (e.g., Core
& Guay, 2001; McGuire, & Matta, 2003). Others may simply have optimistic demeanors.
Indeed, options may allow companies to attract employees who are optimistic about their
companies‟ future performance in the first place (e.g., Bergman & Jenter, 2005; Oyer, &
Schaefer, 2005). Whatever the sources of employee expectations of their company‟s future
performance on the stock market, we hypothesize:
H9: The magnitude of expected increases in the price of the company’s stock is positively
related to expected financial gains from options.
Antecedents of Perceived Understanding of Stock Options
Employees, we have argued, are most likely to be enthusiastic about their stock options if they
not only expect to achieve financial gains from their options but also perceive that they
understand how options work. Lacking such perceptions of understanding, employees may find
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options confusing, intimidating, or off-putting. Objective knowledge of stock options is perhaps
the primary driver of perceived understanding; those who do in fact know how options work are
likely to perceive that their understanding of options is strong. They are likely, for example, to
have the regular experience of reading or hearing about options and feeling confident that they
have accurately understood the message. Those who lack an objective knowledge of options may
read or hear about options and feel lost in a sea of terminology they do not understand. We thus
hypothesize:
H10: Objective stock options knowledge is positively related to perceived understanding
of options.
What then predicts objective understanding of options? A company may influence its
employees‟ understanding of stock options by providing extensive communication regarding the
stock options plan. Companies that offer seminars, newsletters, and other pronouncements
regarding options are likely to raise their employees‟ awareness and knowledge of stock options.
Klein (1987) did not assess employees‟ ESOP knowledge, but found that employees were more
satisfied with their company‟s ESOP when the company‟s communications regarding the ESOP
were extensive. We expect:
H11: The extent of company communications about the company’s stock option plan is
positively related to employees’ objective stock options knowledge.
A number of individual differences may also shape employees‟ options knowledge. The
greater employees‟ prior experience of options, the more likely they are to understand options.
Those who have had options in the past and, more specifically, have had the experience of
exercising their options are likely to understand the fundamental logic, terminology, and
practicalities of stock options. Experience in this regard, we argue, is an effective teacher. But,
even in the absence of such experience, employees who have a strong personal interest in
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financial affairs may have, through their readings and explorations, acquired an in-depth and
accurate understanding of stock options. Employees who lack such interest are far less likely to
read about or discuss options or even the stock market itself. In short, interest may fuel
knowledge. We thus hypothesize:
H12: Employees who have exercised stock options (in the current company or a prior
company) are higher in stock options knowledge than are employees who have never
exercised options.
H13: Personal interest in financial affairs is positively related to objective knowledge of
options.
DATA AND METHODS
Sample
We used public sources and contact lists from the National Center for Employee Ownership to
identify companies with broad-based stock option plans. We collected survey data in 2001 and
2002 from the employees of eight publicly traded US companies that provided stock options to
the majority of their employees. One company was in financial services. The other seven were
manufacturing companies, of which five of them specialized in producing electronic and electric
equipment. Company size (number of employees) ranged from 75 to 18,000 employees, with an
average of 3,159 employees. Average annual sales ranged from $21 to $4,135 million, with an
average of $872 million.
Our analyses are based on a sample of 1039 employees from the eight companies. The
majority (73%) of respondents were male. Employees averaged 40 years (age ranged from 20 to
72). Employees‟ racial/ethnic backgrounds were 81% White/Caucasian, 8% Asian, 6% Hispanic,
2% African-American, and 3% “other.” Of the respondents, 31% completed high-school only,
49% graduated from college but had no graduate degree, and 20% held a graduate degree. Most
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employees in our sample were salaried workers (39.7%), followed by supervisors (21.8%),
senior managers (15.0%), hourly employees (12.4%), executives (5.8%), and sales
representatives (5.3%). Half of the employees in our sample reported an annual salary between
$25,000 and $50,000 before tax and the average employee in our sample had an organizational
tenure of 5.4 years. If a company had more than 300 employees in its broad-based options plan,
we offered the company the option of our conducting stratified random sampling of employees.
More specifically, companies reported the number of employees in each of four job categories
(hourly employees; salaried and sales employees; supervisors and middle managers; senior
managers and executives) and we randomly sampled employees from each group to receive our
survey, over-sampling the members of very small groups so as to obtain an adequate number of
respondents in each group. (Note that in all of our analyses, we control for company and job
category.) Company response rates ranged from 40% to 80% with an average of 59%.
Measures
Unless otherwise indicated, all survey measures used a 5-point Likert response scale ranging
from (1) strongly disagree to (5) strongly agree. We used established measures where possible,
but given the dearth of prior research on employee stock options created all of the survey
measures regarding employees‟ stock option holdings, experiences, and attitudes. Prior to data
collection in the eight companies in our sample, we pilot-tested the survey measures with
employees of another broad-based stock options company, obtaining employees‟ feedback
regarding confusing or difficult-to-answer survey items. Because of companies‟ concern for the
privacy of their employees‟ financial records, we were not able to gain access to objective
measures of employees‟ individual stock options (e.g., number of options granted at what time
22
and at what strike price), but respondents provided detailed information regarding their options.
Means, standard deviations, zero-order correlations, and internal consistency reliability estimates
are provided in Table 1.
Organizational commitment. We used Mowday, Steers, and Porter‟s (1979) 7-item scale
to measure organizational commitment. A sample item is “I am proud to tell others that I am part
of this company.”
Turnover intentions. To measure this variable, we used the three-item intent-to-turnover
scale developed by Bluedorn (1982). A sample item is “I will probably look for a new job in the
next year.”
Ownership behavior. We developed three items to operationalize this construct. Sample
items include: “I am very interested in knowing how my company is performing (e.g., quarterly
sales, customer service, return on investments);” and “I seek out and read information about how
this company is performing compared to the company‟s competitors.”
Typical hours of work per week. We assessed typical hours of work with three items,
adapted from Major, Klein, and Ehrhart (2002) that asked participants how many hours they
worked in an average week, how many hours they worked during their last work week, and on
their last regular work day. We multiplied the last item by five and averaged the responses to the
three items.
Employee stock options enthusiasm. We developed a 5-item scale to measure stock
options enthusiasm. Sample items include “It is exciting to receive stock options in this
company” ; “I don‟t really care about the stock options I‟ve received here” (reverse scored); and
“Stock options are over-rated as an employee benefit” (also reverse scored).
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Expected financial gain from stock options. We developed four items to assess this
construct. Sample items include “I expect to make a lot of money from my stock options in this
company.” and “My stock options will provide me with substantial financial gains in the future.”
Perceived understanding of stock options. Respondents indicated their agreement with
five items we designed to assess their perceived understanding of stock options. Sample items
include, “I would feel comfortable explaining to a new employee how stock options work;” “I
understand the tax consequences that stock options have;” and “I find stock options fairly
confusing” (reverse scored).
Employee stock option attributions: Sharing the wealth. We used two items to
operationalize employee attributions that their company gave employees stock options because it
sought to share company wealth with employees: (a) “This company really believes in employee
ownership of the company;” and (b) “This company wants to share the benefits of ownership
with employees.”
Employee stock option attributions: Below-market wages and salaries. We used two
items to operationalize employee attributions that their company gave employees stock options
to gain employee acceptance of low pay: (a) “This company thinks that if it gives employees
stock options, then employees will accept below-market wages and salaries;” and (b) “This
company believes it can pay employees low wages and salaries if it gives employees stock
options.”
Objective stock options knowledge. We tested participants‟ objective knowledge of stock
options with a “test” of six true-false survey items that we developed after consulting with stock
options experts. Sample items include “If stock options are „underwater,‟ this means that the
options are not yet vested” (false) and “If an employee exercises a non-qualified stock option, the
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employee must pay taxes on the difference between the exercise price and the strike price, just as
if that money were ordinary pay” (true). We calculated participants‟ test scores based on the
number of correctly identified statements. Thus, scores for stock options knowledge ranged from
0 to 6.
Company stock performance over the past year. We used the daily closing stock prices
listed at NASDAQ or NYSE, as appropriate, to calculate the change in each company‟s stock
price in the year preceding survey data collection. More specifically, we determined the
percentage change between the average daily stock prices of the time period when participants
filled out the survey and of the same time period in the preceding year. The time periods of
survey administration varied from company to company and ranged from 11 to 31 days.
Perceived current value of stock options portfolio. We assessed employees‟ perceptions
of the current value of their stock options with three variables. Respondents recorded the total
number of their vested and unvested stock options held on a 9-point scale in which 1, “1 – 500
options” and 9, “More than 100,000 options.” Respondents recorded the number of options in-
the-money on a 6-point scale ranging from 1, “None” to 6, “Very Many or All.” And respondents
used a 10-point scale (ranging from 1, “Nothing, my options are underwater” to 10, “Over
$500,000) to record the hypothetical value of their unvested and vested options if they exercised
their options on the current day.
To capture respondents‟ prior experiences with options, we asked respondents whether
they had ever exercised options in the current company (0, “Never exercised”; 1, “Exercised at
least once”). In addition, we asked those respondents who had exercised options in the past to
indicate on an 8-point scale (ranging from 1, “Less than $10,000” to 8, “Over $500,000”), the
value of the options they had previously exercised and cashed in (i.e., the total dollar amount that
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the employee earned before taxes as a result of exercising his or her options in the current
company and selling the shares).
Perceived employee influence over the future company stock price. We used two items
to measure respondents‟ perceptions of their individual and collective influence over the future
stock price. Participants indicated, on a 5-point scale ranging from 1, “very little or not at all” to
5, “very greatly,” the extent to which (a) their own performance and (b) the combined
performance of all employees “affect the price of your company‟s stock.”
Company communications about stock options plan. We used four items to measure
each company‟s communication to employees about the company‟s stock option plan. Sample
items include “This company provides employees with a lot of information about stock options;”
and “This company goes to great lengths to teach employees the value of stock options.” We
aggregated (averaged) individual responses to the company-level of analysis. Researchers have
generally agreed that within-unit agreement as well as sufficient between-unit variability must be
demonstrated to justify the aggregation of individual scores (Klein et al., 2000). The statistics
ICC1 (= .25), ICC2 (= .97) and mean rWG(j) (= .83) provided strong support for the aggregation of
the individual scores (Bartko, 1974; James, 1982; James, Demaree, & Wolf, 1984).
Previous experience with stock options. We asked participants whether they had ever
exercised stock options in the current company or in one or more previously employing
companies (0, “no” and 1, “yes”).
Personal interest in financial affairs. We adapted Mitchell and Mickel‟s (1999) measure
to operationalize this construct. Sample items from the 5-item scale include: “I am aware of the
tax implications of my financial activities;” and “I understand how banks make money on loans,
mortgages, savings accounts, etc.”
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Control variables. In all analyses, we controlled for ten variables (six demographic
variables and four work attitude variables) that may be predictive of the dependent variables in
this study. By controlling for these variables in all of our analyses, we test whether our
hypothesized predictors are significantly related to the outcome variables, above and beyond
other plausible or known predictors of the outcome variables. Further, controlling for these
variables also allowed us to reduce the risk that the relationship of the hypothesized predictors
and outcomes would be inflated by single-source bias (Podsakoff et al., 2003). Demographic
variables included Gender (0 , “male”; 1, “female”); Age (in years); Race (0,”white”; 1, ”non-
white”); Education (ranging from 1, “Some high school” to 6, “Graduate degree”),
Organizational Tenure (in years), Job Category (ranging from 1, “Hourly employee” to 6,
“Executive”), and Pay (annual pay before tax including bonuses or profit sharing, ranging from
1, “Less than $25,000 a year” to 9, “Over $250,000 a year”). Work attitude variables included
Satisfaction with Pay (α = .94), measured with three items of the Michigan Organization
Assessment Questionnaire (Cammann, Fischman, Jenkins, Klesh, 1982) (e.g., “I am very happy
with the amount of money I make”); Satisfaction with Supervisor (α = .92), measured with a
four-item scale (e.g., “My supervisor works with me in a satisfactory way.”) adapted from the
Multifactor Leadership Questionnaire (Bass, & Avolio, 1990); Intrinsic Job Characteristics (α =
.84), measured with six items adapted from Warr, Cook, and Wall (1979) (e.g., “The freedom to
choose your own method of working.”) ranging from 1, “There is none of that in my job” to 5,
“There is a great deal of that in my job”; and Perceived Participation in Decision-Making (α =
.77), a seven item scale (Klein, 1987) that asked participants how much say or influence non-
managerial employees in the company had over seven areas (e.g., working conditions, pay and
other compensations).
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Confirmatory Factor Analyses
Although employee stock options enthusiasm is theoretically distinct from the constructs that
serve as antecedents, outcomes and controls in our model, we tested its discriminant validity with
confirmatory factor analyses (CFA). We performed factor analyses on the sample pooled-within
covariance matrix (SPW) in order to control for any differences among the eight companies
(Muthen, 1994; Dyer, Hanges & Hall, 2004).
First, we tested the discriminant validity of stock options enthusiasm and the outcome
variables turnover intention, ownership behavior, organizational commitment and typical hours
of work. The 5-factor model fitted the data well (CFI = .98, RMSEA = .04, SRMR = .04) (Hu &
Bentler, 1999). All items significantly loaded on their respective latent variables. Also, the 5-
factor model fitted the data significantly better than the 1-factor model (CFI = .75, RMSEA =
.12, SRMR =.11) and any other model with fewer than 5 latent variables (e.g., a 4-factor model
with items of stock options enthusiasm and ownership behavior loading on the same latent
variable: CFI = 89., RMSEA = .08, SRMR = .05). Similarly, the 5-factor model with stock
options enthusiasm and the antecedent variables expected financial gain from stock options,
perceived understanding of stock options and employee stock options attributions (wealth
sharing and below market pay) showed a significantly better fit with the data (CFI = .99,
RMSEA = .03, SRMR = .03) than the 1-factor model (CFI = .56, RMSEA =.17, SRMR = .13) or
any 2-factor model (e.g., a 2-factor model with items of stock options enthusiasm and expected
financial gain from stock options loading on the same latent variable: CFI = .84, RMSEA = .09,
SRMR = .10). Next, we formed a 5-factor model with stock options enthusiasm and the four
work attitude variables that served as controls in the subsequent analyses. The model showed
better fit with the data (CFI = .96, RMSEA = .04, SRMR = .04) than the 1-factor model (CFI =
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.50, RMSEA = .15, SRMR = .12) and other models with combined latent variables (e.g., a 4-
factor model with items of stock options enthusiasm and pay satisfaction loading on the same
latent variable: CFI = .84, RMSEA = .09, SRMR = .10). Finally, we tested the overall
measurement model with 13 latent variables including stock options enthusiasm, work attitude
variables, antecedent and outcome variables. The model showed satisfactory fit to the data (CFI
= .97, RMSEA = .03, SRMR = .04). Taken together, the CFA results indicated that stock options
enthusiasm is not only theoretically but also empirically distinguishable from the other constructs
in our model.
Analyses
As employees were nested within eight different companies, we used random coefficient
modeling (also known as hierarchical linear modeling) to test our hypotheses. Random
coefficient modeling enabled us to test the relationships at the individual level of analysis while
controlling for differences among companies. It also allowed us to test cross-level relationships
between company-level variables (i.e., company communication about company‟s stock option
plan and stock price change in preceding year) and individual-level variables (i.e., stock option
knowledge and expected financial gain from stock options). Traditional ordinary least square
(OLS) regression analysis does not account for hierarchically nested data and the resulting non-
independence of observations, which can lead to misrepresentations of the tested relationships
(Raudenbush & Bryk, 2001). We group-mean centered the individual-level predictors by
subtracting the company mean scores from the individual scores. This way, we only predicted
within-company variability in the outcome variables and statistically removed between-company
variability (Hofman & Gavin, 1998). In all analyses, we first entered the eleven control variables
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in order to account for employees‟ differences in demographics and work attitudes and then
entered the predictor variables that we used to test our hypotheses.
RESULTS
Table 1 shows the means, standard deviations, internal consistency reliabilities, and zero-order
correlations among all measures.
Consequences of Employee Stock Options Enthusiasm: Hypotheses 1a - 1d
As shown in Table 2 and consistent with Hypothesis 1, employee stock options enthusiasm is
positively related to organizational commitment (b = .28, p < .001), ownership behavior (b = .14,
p < .001), and typical hours of work per week (b = .65, p < .05), and negatively related to
turnover intentions (b = -.29, p < .001). Over and above demographic and work attitude variables
which explain between 16% and 39% of the variance in the outcome measures, stock options
enthusiasm explains 7% of the variance in organizational commitment, 2% of the variance in
ownership behavior, 1% of the variance in typical hours of work, and 4% of the variance in
turnover intentions.
Antecedents of Employee Stock Options Enthusiasm: Hypotheses 2 – 4
As shown in Table 3 and predicted in Hypotheses 2a and b, expected financial gain is
significantly positively related to employee stock options enthusiasm (b=.42; p<.001). The
significant squared term for expected financial gain (b= -.07; p<.001) indicates that the
relationships is nonlinear in that expected financial gain from options is more strongly related to
employee stock options enthusiasm at low versus high levels of expected financial gain (see
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Figure 2). Consistent with Hypotheses 3, 4a, and 4b, both perceived understanding of stock
options (b= .10; p<.001) and employee attributions of why the company gives employees options
(sharing the wealth with employees: b= .11; p<.001; gaining acceptance for below-market
employee pay: b= -.13; p<.001) are significantly related to employee stock options enthusiasm.
Together, expected financial gain, perceived understanding and employee attributions explain
23% of the variance of stock options enthusiasm, over and above the control variables (which
predict 21% of the variance in stock options enthusiasm). Expected financial gain from stock
options is the strongest predictor; when entered alone, it accounts for 20% of the variance over
the control variables. In contrast, when entered alone, perceived understanding of stock options
accounts for 2%, and employee attributions for 10% of the variance over control variables.
Antecedents of Expected Financial Gain from Stock Options: Hypotheses 5 – 9
Table 4 shows the results of our tests of Hypothesis 5 - 9. Consistent with Hypothesis 5,
company stock performance in the past year is positively related to expected financial gain (b =
.28); a 3% change in the company‟s stock price in the preceding year is associated with close to a
one-point change in average expected financial gain. This suggests a strong relationship between
stock price change and expected financial gain but the relationship is not significant (p = .26),
most likely due to the small sample size at the company level of analysis (n = 8).
Consistent with Hypothesis 6, the total number of stock options (b = .07, p < .01), the
number of options in-the-money (b = .07, p < .001), and the dollar value of vested and unvested
stock options (b = .05, p < .001) are significantly, positively related to expected financial gain.
As predicted in Hypothesis 7, past experience and earnings from stock options are
significantly related to expected financial gain. Employees who have never exercised stock
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options in their current company have significantly lower expectations of their future gain from
stock options than those who have exercised options before (b = 6.36, p < .05). Further, of those
employees who have exercised and cashed in their options before, those with higher earnings
from their options have significantly higher expectations about future gains than those with
lower earnings (b = .06, p < .05).
Supporting Hypothesis 8, perceived employee influence over the future price of company
stock is significantly, positively related to expected financial gains from options (b = .16, p <
.001). Finally, as predicted in Hypothesis 9, higher expectations of the company‟s stock price in
the following year are significantly related to higher expectations in financial gain from stock
options (b = .27, p < .001). Employees who express no expectations about the future stock price
expect significantly less gain from their stock options than employees who have these
expectations (b = -27.22, p < .001). Expectations about the future stock price and perceptions of
employee‟s influence of the future price account for the largest proportion of explained variance
in expected financial gain (11%) above and beyond the control variables, which explain 20% of
the variance in expected financial gain.
Antecedent of Perceived Understanding and Objective Stock Options Knowledge:
Hypotheses 10 – 13
Consistent with Hypothesis 10, an employee‟s objective knowledge of stock options is positively
related to his or her perceived understanding of stock options (b= .21, p<.001) and explains 10%
of the variance of perceived understanding (Table 5). The results of our tests of Hypotheses 11 –
13 appear in Table 5. In spite of the large effect size, company communication about the stock
option plan is not significantly related to employee stock option knowledge (b = .28, p = .80),
contrary to Hypothesis 11. As above, the nonsignificance of the result may well reflect our small
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sample size at the company level of analysis (n = 8). In partial support of Hypothesis 12, having
ever exercised stock options in the current or previously employing companies is significantly
positively related to stock options knowledge (b = .35, p < .001). Finally, as predicted in
Hypothesis 13, personal interest in financial affairs (b = .45, p < .001) is significantly, positively
related to stock options knowledge. Together, the predictors specified in Hypotheses 11 – 3
accounted for a small but significant amount of variance in objective stock options knowledge
(8%).
DISCUSSION
Over the past two decades, thousands of companies have implemented broad-based stock option
plans, distributing options to millions of employees. Despite their continuing prevalence, these
plans have been the focus of very little research. Our goal in this study was thus to shed new
light on the nature and likely antecedents, and consequences of employee responses to stock
options. Stock options, we have suggested, offer employees a thin promise, a hope, a possibility:
“You just might make a lot of money.” Our findings suggest that employees‟ responses to stock
options rest on their assessment of this promise: their belief that the promise will be fulfilled –
that is, that they will indeed make a lot of money from their options; their attributions regarding
why the company has offered this promise; and their subjective sense that they understand how
options work. The value of stock options – impossible to predict with certainty and accuracy,
economists concede – is thus in the expectations, attributions, and perceived understanding of the
recipient. Our explication and documentation of the psychology of stock options – and more
specifically, of the role of employee expectations, attributions, and perceptions in shaping the
33
likely behavioral and attitudinal consequences of stock options – is a key contribution of our
work.
Our study makes several additional contributions to the nascent literature on broad-based
options. Our study – the first to assess individual employees‟ perceptions of, reactions to, and
knowledge of stock option – suggests that stock options enhance employee commitment, work
hours, ownership behavior, and intentions to remain with the company if employees are
enthusiastic about their options. Our findings at once lend credence to economists‟ and others‟
arguments that stock options strengthen employee attachment, motivation, and retention (**) and
offer a major proviso to this claim: stock options “work” in strengthening attachment,
motivation, and retention intentions, our findings suggest, so long as employees are excited by
and grateful for their stock options. As prior research has not, to our knowledge, tested the
individual-level relationship between employee stock option characteristics, perceptions, and
attitudes and employee outcomes, our findings demonstrating a significant link between stock
options enthusiasm and employee outcomes, above and beyond the effects of numerous
demographic and work attitude measures, represent a second key contribution of our research.
Our findings draw attention to the dark side of stock options: the possibility that stock
options may dampen and diminish employee commitment, work hours, ownership behavior, and
retention intentions. When employees expect little or no financial gain from their options, their
enthusiasm falls sharply. Indeed, the relationship between financial gain and stock options
enthusiasm is, in keeping with the value function of prospect theory (***), curvilinear. Thus, the
disappointment employees feel when they expect little or no financial gain from their stock
options may exceed the excitement they feel when they anticipate financial gains from their
options. By documenting the dark side of stock options, we offer an important third contribution
34
to the emerging literature on broad-based options. While researchers have suggested that
executive stock options may have a dark side, hastening executive turnover when executives‟
stock options are underwater (Dunford et al., 2005), the possibility that broad-based stock
options from which employees expected limited or no financial gain may have a comparable
effect on rank-and-file employees‟ attitudes and behavior has not, to our knowledge, been
heretofore considered or documented in the literature on broad-based options.
Finally, our findings contribute to the emerging literature on broad-based stock options
by demonstrating the myriad factors that may influence employee responses to stock options.
Stock options enthusiasm, our findings suggest, reflects employees‟ expectations of financial
gain from their options, employees‟ attributions for their company‟s provision of stock options,
and employees‟ subjective feeling that they understand how options work. Of these, expectations
of financial gain is the strongest correlate of stock options enthusiasm. In forming their
expectations of financial gain, employees implicitly or explicitly consider, our findings suggest,
their company‟s performance on the stock market over the preceding year; their current stock
options portfolio (including ***); their prior history of stock options exercise; and their hunches
that their company will perform well (or poorly) on the market and their beliefs about the extent
to which they and their co-workers may influence this outcome. The influence of the latter
factors (employees‟ beliefs about their company‟s upcoming performance on the market and
about their individual and collective ability to influence that performance) hints at the power,
when it comes to stock options, of employee optimism. Stock options invite employees to
imagine their company‟s future performance on the stock market and those who imagine the
rosiest future, for whatever reason, are most enthusiastic about their options.
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While expected financial gain is the strongest of our predictors of stock options
enthusiasm, employee attributions and perceived understanding are also significant correlates of
stock options enthusiasm. When employees see in their company‟s provision of stock options to
employees an indication of their company‟s desire to share the wealth with employees, they are
likely to greet their options with enthusiasm. When employees see in their company‟s provision
of stock options a desire to gain employee acceptance of sub-market pay, they are more likely to
greet their options with disappointment and cynicism than with enthusiasm. These findings
underscore the psychology of stock options – that is, the extent to which the value of stock
options are in the eyes, and more specifically in the expectations, perceptions, and
interpretations, of the holder. Employees‟ responses to stock options are shaped not only by
employees‟ recollection and assessment of what their company has given them – the number and
expected value of their options, for example – but also by their conclusions regarding why their
company has done so. Our findings regarding employees‟ perceived versus objective
understanding of stock options strike a similar theme. Our measures of perceived (subjective)
understanding of stock options and of objective stock options knowledge are significantly
positively correlated. And yet perceived understanding of options is a much stronger correlate of
stock options enthusiasm: what matters most, our findings indicate, is what employees believe
they understand, not what they actually understand.
The Psychology of Stock Options: Some Implications
Taken as a whole, our findings offer important insights for scholars of organizational behavior,
economists interested in stock options, and business leaders interested in broad-based stock
options. For scholars of organizational behavior, our findings invite new attention to the financial
36
ties that link an employee to his or her employer. With only a few exceptions (e.g., Klein, 1987;
Mitchell & Mickel, 1999; Rousseau & Shperling, 2003), scholars of organizational behavior
have little considered the influence of financial incentives (other than pay) on employees‟
attachment to their companies. Our findings suggest that stock options may take on symbolic
importance to employees, fostering either a sense of identification, gratitude, and perceived
alignment with the company, or conversely disappointment and perhaps even betrayal. We see a
need and an opportunity for further research as well theory-building regarding the mechanisms
of investment, gain-sharing and/or ownership that may bond an employee financially and
emotionally to his or her employer. We know from the current research and from related prior
research (e.g., Buchko, 1992; Klein, 1987; Wagner, Parker, & Christiansen, 2003; Kuvaas, 2006;
Worley, Bowen, Lawler, 1992) that money matters. And yet, extant research and theory do not
capture, in a detailed, systematic, and integrated fashion how employees evaluate and make
sense of their financial ties to their companies and with what consequences. Within
organizational behavior and even strategic human resources management, conceptual and
empirical analyses of the nature, antecedents, and consequences of the many forms of justice that
employees experience at work (e.g., **) – to take one example –are far more developed than are
conceptual and empirical analyses of the nature, antecedents, and consequences of the many
forms of compensation that employees experience at work.
For economists, our findings offer new insights into the range of factors that may shape
employees‟ interpretations and expectations of the financial benefits they receive. Employee
expectations of and responses to stock options are not economically rational, our results suggest.
There is no economically rational reason why employees‟ past history with options should
predict their expected financial gain from options, for example, nor any economically rational
37
reason for the number of options an employee has to predict his or her financial gain from
options above and beyond the effects of the value of his or her current vested and unvested
options. And yet, both an employee‟s past history with options and the number of options he or
she holds are significant predictors of expected financial gain (in regression analyses containing
numerous predictors). Our findings thus illustrate the value of dropping from the company to the
individual level of analysis to assess – rather than to assume – how employees interpret and
evaluate the financial benefits their company provides.
Finally, our findings send a cautionary note to business leaders considering whether to
provide stock options to employees. Our findings suggest that stock options may strengthen or
weaken employees‟ bonds to the company. When financial gain is most assured, employees are
likely to be enthusiastic about their options and grateful to their employer. But a downturn in the
market, in the company‟s performance, or simply in employees‟ expectations can dampen
employees‟ enthusiasm for their options and for their employer. Employers may bolster
employee stock options enthusiasm, our findings suggest, by providing information and training
to employees to foster their perceived and actual understanding of stock options; by
communicating their desire to share the benefits of ownership with company employees; by
providing employees with many options (numbers matter, our findings suggest); and by
encouraging employees to exercise their options when they can do so. Still, employees‟
expectations of the financial gain they will receive from their options are likely to be, to a very
substantial extent, beyond company control. And thus, our findings suggest, employee responses
to stock options are likely to be, to a very substantial extent, also beyond company control.
38
Limitations and Directions for Future Research
Although our research sheds important new light on the psychology of broad-based stock
options, our findings are limited in a number of respects. First, most of data come from a single-
source (the employee respondent), as we were unable to gain access to objective company
records of individual employees‟ stock option history and holdings. In testing the hypothesized
antecedents and consequences of employee stock options enthusiasm, we controlled for
numerous demographic characteristics (e.g., gender, education) and work-related attitudes and
perceptions (e.g., satisfaction with pay and supervisor), thereby eliminating to a considerable
extent the possibility that our findings are the result of common-method variance (Podsakoff, et
al. 2003). Still, research is needed to test the relationship between employees‟ objective stock
option holdings, their perceptions of these holdings, and their responses to their stock options.
Second, we studied employees of just eight companies, gathering data in 2001 and 2002. A
larger data set, spanning additional companies and industries, would have allowed us to conduct
more extensive multilevel analyses to assess the relationship between company-level predictors
and employee outcomes. Further, it is possible that employees have grown more skeptical of
stock options in recent years, though it seems to us unlikely that the hypothesized antecedents of
stock options we studied (expected financial gain; perceived understanding; attributions
regarding the company‟s reasons for providing options to employees) have changed notably in
intervening years. Additional research is needed not only to assess employee attitudes towards
stock options in more recent years but also to trace the ups and downs of stock options
enthusiasm over time. If an employee‟s options fall “out-of-the-money” in year 1, how does he
or she respond when his or her options are again “in-the-money” in a subsequent year? Is stock
options enthusiasm volatile, changing with a company‟s performance on the stock market, or
39
more enduring even in the face of such changes? Finally, our data shed new light on the
conditions under which stock options are likely to foster employee motivation, commitment, and
retention but cannot, of course, address the relative merits for employee motivation and
attachment of stock options versus other forms of employee ownership and gainsharing. If an
employer seeks to strengthen employee commitment and motivation, should the employer
implement broad-based employee stock options, an ESOP, a profit-sharing plan, or even a
combination of these? Research suggests that each type of plan may, under the right
circumstances, strengthen and enhance positive employee attitudes and behaviors. But, which
approach is best? Research is needed to answer this question. We encourage such research, while
noting its daunting complexity.
CONCLUSION
Do stock options work? Do they motivate employees to think like owners? To work longer
hours? To identify with their company? To stay at the company longer? Our findings suggest
that the answer is a qualified yes. Stock options “work” if employees are enthusiastic about their
options – that is, if they are excited by and grateful for their options. And employees are most
likely to be enthusiastic about their options, our findings suggest, if they expect that their options
will bring them financial gain; if they attribute their company‟s provision of broad-based options
to their company‟s largess; and if they perceive that they understand how options work. The
motivational, attitudinal, and behavioral benefits that stock options may provide to employers are
thus, like the monetary benefits that stock options may provide to employees, by no means
certain. Employers, our findings suggest, are most likely to benefit from the provision of stock
options to employees when employees think that they will benefit from their options. When
40
employees expect no such benefits, attribute their company‟s provision of options to their
company‟s desire to pay submarket wages, and question their own understanding of stock
options may backfire, diminishing employee commitment, work hours, and retention. To
understand the effects of employee stock options, one must thus understand the psychology of
stock options.
41
FIGURE 1
Antecedents and Consequences of Employee Stock Options Enthusiasm
Employee SO
Enthusiasm
Expected
Financial Gain
From SO
Perceived
Understanding
of SO
H3
Employee SO
Attributions
a) Wealth sharing
b) Below market pay
H4
H10
Perceived Current Value of an
Employee’s SO Portfolio
a) Total number of SO held
b) Proportion of SO in-the-money
c) Value of vested and unvested SO
Employee Outcomes
a) Organizational
commitment
b) Ownership behavior
c) Hours of work
d) Turnover intentions
H1
H5
Experience with SO within
the Company
a) Ever exercised and cashed in SO
b) Value of prior earnings from
exercising and cashing in SO
Perceived Employee Influence
over the Future Stock Price
Expected Stock Price in 1 Year
Objective
SO
knowledge
Company Communication
about SO Plan
Personal Interest in
Financial Affairs
Ever Exercised SO
H2
H6
H7
H8
H9
H11
H12
H13
Company Stock Performance
over the Past Year
42
FIGURE 2
The Relationship between Expected Financial Gain from Stock Options
and Stock Option Enthusiasm
1
2
3
4
5
-2 -1 0 1 2
Stock Option
Enthusiasm
Expected Financial Gain from Stock Options (centered)
43
TABLE 1
Means, Standard Deviations, Reliability Coefficients, and Correlations of Study Variables
n = 1039. For multi-item scales, internal consistency reliabilities are in parentheses on the diagonal.
Correlations ≥ |.06| are significant at p < .05, correlations ≥ |.08| are significant at p < .01. 1 Variables 10. Stock price change in preceding year and 19. Company communication about SO plan are at the company-level of analysis. The company-level scores were assigned to individuals to calculate cross-level correlations. 2 Exercised and cashed in SO at least once in current, employing company. 3 Total value of exercised and cashed-in SO in current company. For all correlations: n = 368. Correlations ≥ |.10| are significant at p < .05, correlations ≥ |.14| are significant at p < .01. 4 For all correlations: n = 858. Correlations ≥ |.07| are significant at p < .05, correlations ≥ |.09| are significant at p < .01. 5 n = 318. Correlation significant at p < .05. 6 In current and previous, employing companies.
Variables Mean s.d. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
1. Employee SO enthusiasm 3.70 .86 (.86)
Consequences of employee SO enthusiasm
2. Organizational commitment 3.71 .75 .53 (.88) 3. Ownership behavior 4.00 .63 .24 .27 (.72)
4. Typical hours of work per week 48.47 8.08 .23 .18 .35 (.85)
5. Turnover intentions 2.33 1.01 -.45 -.67 -.07 -.10 (.88)
Antecedents of employee SO enthusiasm
6. Expected financial gain from SO 2.84 .96 .71 .43 .20 .21 -.39 (.87)
7. Perceived understanding of SO 3.69 .77 .24 .16 .30 .11 -.08 .20 (.86) 8. Employee SO attribution:
Wealth sharing 3.47 .89 .43 .51 .14 .28 -.38 .41 .20 (.82)
9. Employee SO attribution: Below-market pay
2.56 .97 -.49 -.35 -.05 -.10 .40 -.36 -.11 -.29 (.90)
Antecedents of expected financial gain
10. Company stock performance over the past year 1
-.12 .44 .32 .17 .07 .15 -.15 .23 -.07 .02 -.19
11. Total number of SO held 3.48 1.74 .17 .10 .22 .26 -.10 .24 .27 .14 -.14 -.22
12. Proportion of SO in-the-money 3.15 1.93 .39 .18 .11 .23 -.16 .36 -.03 .02 -.24 .64 -.03 13. Value of vested and unvested SO 2.67 2.00 .29 .16 .06 .19 -.17 .38 -.04 .16 -.23 .31 .30 .49
14. Ever exercised and cashed in SO 2 .36 .48 .17 .05 .11 .12 -.04 .13 .17 -.02 -.10 .22 .07 .28 .20
15. Value of SO cashed in 3 2.65 1.70 .20 .18 .22 .24 -.10 .31 .22 .14 -.12 -.05 .47 .06 .39 * 16. Perceived employee influence
over the future stock price 3.65 .74 .28 .31 .31 .14 -.16 .24 .13 .25 -.18 .05 .09 .11 .05 .05 .11 (.89)
17. Expected stock price in 1 year 4 3.35 1.14 .34 .29 .05 .08 -.31 .43 .12 .30 -.26 -.07 .24 .07 .11 -.00 .115 .12 18. Expected stock price in 1 year
– no expectation .17 .38 -.10 -.06 -.15 -.12 -.01 -.12 -.11 -.04 -.01 -.08 -.09 -.07 -.06 -.08 -.04 -.08 *
Antecedents of perceived understanding
19. Objective SO knowledge 4.76 1.28 .02 .01 .20 .15 .04 -.01 .39 .06 -.03 -.23 .33 -.16 -.10 .05 .22 .08 .06 -.07
Antecedents of objective knowledge
20. Company communications about
SO plan 1 3.29 .45 .02 .03 .15 -.22 -.09 .05 .11 .19 -.08 -.19 .34 -.29 .05 -.05 -.03 -.05 .21 .05 .08 (.89)
21. Personal interest in financial affairs
4.00 .60 .07 .13 .54 .24 .05 .06 .46 .09 .04 -.08 .14 -.07 -.06 .00 .18 .21 -.05 -.16 .40 -.11 (.75)
22. Ever exercised SO 6 .57 .50 .14 -.01 .16 .17 .01 .12 .27 -.06 -.10 .09 .22 .18 .16 .64 .07 .07 .02 -.09 .16 -.06 .12
44
TABLE 1 – cont’d
Means, Standard Deviations, Reliability Coefficients, and Correlations of Study Variables
Variables Mean s.d. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
Control variables
23. Gender (0, „male‟; 1, „female‟) .27 .44 -.03 .06 -.16 -.21 -.04 -.03 -.14 .11 -.08 -.07 -.09 -.07 -.02 -.03 -.01 -.03 -.05 .12 -.12 .14 -.17 -.04
24. Age 40.56 9.35 .10 .11 .10 .16 -.14 .06 .02 .02 -.15 .17 .08 .18 .12 .09 .09 .04 .03 .02 .00 -.12 .07 .19 25. Race (0, „white‟; 1, „non-white‟) .20 .40 .00 -.04 -.11 -.12 .04 .01 -.05 .04 .06 -.02 -.08 -.03 .02 -.03 -.07 -.08 -.03 .07 -.15 .15 -.12 -.05
26. Education 4.12 1.15 .02 -.02 .21 .18 .08 .01 .16 .00 .02 -.10 .26 -.02 .04 -.04 .18 .02 .02 -.11 .30 -.05 .25 .06
27. Organizational tenure 5.41 5.16 .21 .24 .14 .19 -.10 .16 .03 .08 -.14 .39 -.11 .40 .22 .36 .19 .07 -.07 -.05 -.05 -.43 .10 .22 28. Part-time .02 .13 -.07 -.06 -.05 -.38 .07 -.09 -.00 -.07 .04 -.03 -.04 .00 -.07 .02 -.00 .03 -.07 .03 .01 .03 -.02 -.01
29. Salary 3.78 1.62 .22 .17 .37 .49 -.13 .22 .27 .11 -.18 .01 .60 .12 .25 .09 .52 .13 .09 -.13 .32 -.11 .29 .28
30a. Job: Hourly employee .12 .33 .00 -.00 -.25 -.34 -.04 .00 -.12 .02 .07 .08 -.24 -.04 -.05 -.06 -.19 -.06 -.03 .08 -.26 .15 -.22 -.14 30b. Job: Sales representative .05 .22 -.04 -.00 .05 .09 .01 -.00 .01 .00 .05 -.07 .02 -.08 -.08 -.07 -.02 .06 .01 -.06 .02 .02 .07 .00
30c. Job: Salaried employee .40 .49 -.28 -.20 -.17 -.25 .10 -.27 -.06 -.10 .08 -.25 -.10 -.29 -.19 -.09 -.14 -.12 -.04 .07 .02 .24 -.10 -.15
30d. Job: Supervisor .22 .41 .12 .06 .07 .14 -.02 .09 -.02 .03 -.08 .07 -.03 .14 .04 .08 -.03 .02 .03 -.01 .05 -.16 .03 .07 30e. Job: Senior manager .15 .36 .16 .11 .23 .28 -.03 .15 .12 .03 -.04 .15 .15 .21 .16 .09 .17 .12 .02 -.07 .09 -.19 .18 .14
30f. Job: Executive .06 .23 .17 .14 .18 .23 -.09 .15 .14 .09 -.10 .14 .35 .15 .24 .07 .25 .05 .02 -.07 .09 -.15 .13 .17 31. Satisfaction with pay 2.98 .97 .25 .26 .01 .02 -.38 .24 .07 .22 -.46 -.05 .23 .03 .16 .02 .22 .07 .20 .03 .01 .14 -.07 .06
32. Satisfaction with supervisor 3.59 .93 .22 .39 .11 .07 -.39 .22 .18 .23 -.18 .00 .06 .00 .02 -.03 .09 .13 .15 -.06 .02 -.03 .07 -.04
33. Intrinsic job characteristics 3.63 .77 .40 .49 .22 .30 -.43 .36 .13 .25 -.30 .17 .21 .23 .18 .04 .28 .23 .22 -.06 .06 -.15 .08 .07 34. Perceived participation in
decision-making 2.32 .56 .26 .33 .14 .10 -.24 .25 .13 .27 -.23 .03 .17 .08 .08 -.04 .26 .21 .23 -.04 .04 -.04 .04 -.02
45
TABLE 1 – cont’d
Means, Standard Deviations, Reliability Coefficients, and Correlations of Study Variables
Variables 23 24 25 26 27 28 29 30a 30b 30c 30d 30e 30f 31 32 33 34
Control variables
23. Gender (0, „male‟; 1, „female‟)
24. Age -.06 25. Race (0, „white‟; 1, „non-white‟) .08 -.12
26. Education -.12 .01 -.00
27. Organizational tenure -.03 .26 -.12 -.07 28. Part-time .08 .06 -.05 -.05 -.01
29. Salary -.21 .25 -.13 .37 .17 -.07
30a. Job: Hourly employee .13 -.08 .14 -.36 -.08 .12 -.42 30b. Job: Sales representative -.04 .03 -.07 -.03 -.10 -.03 .07 -.09
30c. Job: Salaried employee .04 -.18 .03 .02 -.28 .01 -.26 -.31 -.19
30d. Job: Supervisor -.04 .05 -.00 .08 .18 -.04 .05 -.20 -.13 -.43 30e. Job: Senior manager -.07 .14 -.06 .14 .19 -.04 .34 -.16 -.10 -.34 -.22
30f. Job: Executive -.07 .16 -.09 .15 .19 -.03 .45 -.09 -.06 -.20 -.13 -.10 31. Satisfaction with pay .02 .09 -.05 .00 .02 -.03 .21 -.09 -.02 .02 .04 .01 .02 (.94)
32. Satisfaction with supervisor -.03 .03 .02 .02 .04 .01 .11 .01 .04 -.09 .01 .05 .05 .22 (.92)
33. Intrinsic job characteristics -.01 .12 -.08 .10 .16 -.08 .35 -.17 -.01 -.21 .08 .22 .20 .29 .45 (.84) 34. Perceived participation in
decision-making -.08 .01 -.05 .09 .06 -.01 .22 -.10 -.06 -.07 -.00 .11 .18 .27 .29 .46 (.77)
46
Table 2
Results of the HLM Analyses for Hypothesis 1
1a.
Organizational
Commitment
1b.
Ownership
Behavior
1c.
Typical Hours
of Work per Week
1d.
Turnover
Intentions
Variables Model 1 Model 2 Model 1 Model 2 Model 1 Model 2 Model 1 Model 2
Intercept 3.82*** 3.76*** 4.14*** 4.11*** 50.44*** 50.30*** 2.32*** 2.38***
Gender (0, „male‟; 1, „female‟) .09* .09* -.09* -.09* -1.13** -1.12** -.07 -.07
Age .00 .00* -.00 -.00 .01 .01 -.01*** -.01***
Race (0, „white‟; 1, „non-white‟) -.03 -.03 -.06 -.06 -.49 -.48 .08 .08
Education -.02 -.02 .03 .03 -.32 -.31 .07** .07**
Organizational tenure .02*** .02*** .00 .00 .01 .01 -.00 -.00
Part-time (0, „full-time‟; 1, „part-time)
-.24 -.16 -.02 .02 -
19.72*** -19.52*** .48* .40*
Salary -.03 -.04* .06*** .06*** 1.36*** 1.35*** .01 .02
Job1
Hourly employee -.09 -.05 -.36** -.34** -5.50*** -5.41*** -.12 -.16
Sales representative -.03 .03 -.04 -.01 .18 .30 .06 -.01
Salaried employee -.23* -.12 -.23* -.17 -3.09** -2.83** .06 -.05
Supervisor -.15 -.12 -.10 -.09 -.31 -.23 .10 .06
Senior manager -.16 -.12 .03 .05 .61 .70 .19 .15
Satisfaction with pay .08*** .05* -.04* -.06** -.80*** -.89*** -.24*** -.20***
Satisfaction with supervisor .15*** .13*** .04 .03 .03 -.01 -.25*** -.23***
Intrinsic job characteristics .31*** .25*** .05 .02 1.22*** 1.07** -.35*** -.29***
Perceived participation in
decision-making
.13*** .09* .05 .01
-.71 -.79* .00 .04
Employee SO enthusiasm .28*** .14*** .65* -.29***
R2 .31 .38 .16 .18 .39 .40 .28 .32
ΔR2 (compared to Model 1) .07 .02 .01 .04
n = 1039. 1 Omitted job category: executive.
Proportion of between-company variance in organizational commitment = .09, in ownership behavior = .08 , in typical hours or work = .14 ,
and in turnover intentions = .06.
* p < .05
** p < .01
*** p < .001
47
Table 3
Results of the HLM Analyses for Hypotheses 2 - 4
Employee Stock Options Enthusiasm
Variables
Model 1 Model 2 Model
3 Model 4 Model 5
Intercept 3.94*** 3.88*** 3.88*** 3.91*** 3.85***
Gender (0, „male‟; 1, „female‟) -.03 -.01 .01 -.11* -.04
Age -.00 .00 -.00 -.00 -.00
Race (0, „white‟; 1, „non-white‟) -.02 .01 .01 .01 .02
Education -.01 .00 -.02 .01 .00
Organizational tenure .01 .00 .01 .00 -.00
Part-time (0, „full-time‟; 1, „part-time) -.26 -.03 -.29 -.10 .01
Salary .02 .00 .01 .01 -.00
Job1
Hourly employee -.15 -.11 -.00 -.15 -.07
Sales representative -.20 -.14 -.14 -.21 -.12
Salaried employee -.41** -.19 -.34** -.37** -.17
Supervisor -.12 -.06 -.06 -.11 -.03
Senior manager -.14 -.09 -.12 -.08 -.05
Satisfaction with pay .13*** .06** .14*** .03 .01
Satisfaction with supervisor .06* .03 .05* .03 .01
Intrinsic job characteristics .23*** .12*** .22*** .17*** .10**
Perceived participation in decision-making .13** .05 .12* .03 .00
Expected financial gain from SO .50*** .42***
Expected financial gain from SO sq -.08*** -.07***
Perceived understanding of SO .19*** .10***
Employee SO Attributions:
Wealth sharing .26*** .11***
Below-market pay -.19*** -.13***
R2 .21 .41 .23 .31 .44
ΔR2 (compared to Model 1) .20 .02 .10 .23
n = 1039. 1 Omitted job category: executive.
Proportion of between-company variance in stock options enthusiasm = .18 and in expected financial gain from stock
options = .12 .
* p < .05
** p < .01
*** p < .001
48
Table 4
Results of the HLM Analyses for Hypotheses 5 - 9
Expected Financial Gain from Stock Options
Variables Model 1 Model 2 Model 3 Model 4 Model 5 Model 6
Intercept 3.10** 3.10*** 2.87*** -7.89** 3.11*** -3.44
Gender (0, „male‟; 1, „female‟) -.04 -.04 -.04 -.05 .01 -.00
Age -.01* -.01* -.01 -.01* -.01 -.00
Race (0, „white‟; 1, „non-white‟) -.03 -.02 -.02 -.03 -.00 .03
Education -.02 -.02 -.03 -.02 -.02 -.03
Organizational tenure .01 .01* .00 .00 .00 .00
Part-time -.42* -.43* -.41* -.43* -.32 -.31
Salary .04 .05* -.02 .02 .04 -.02
Job 1
Hourly employee -.14 -.09 .17 .11 -.10 .16
Sales representative -.13 -.08 .17 -.09 -.18 .09
Salaried employee -.45** -.43** -.16 -.41** -.40** -.14
Supervisor -.14 -.12 .05 -.10 -.16 .02
Senior manager -.11 -.07 .02 -.09 -.15 -.04
Satisfaction with pay .13*** .13*** .11*** .13*** .12*** .11***
Satisfaction with supervisor .08** .08** .09** .09** .06* .08*
Intrinsic job characteristics .22*** .21*** .19*** .21*** .17*** .14***
Perceived participation in
decision-making
.14** .14** .14** .13* .04 .04
Company stock performance
over the past year 2
.28 .28
Total number of SO held .09*** .07**
Proportion of SO in-the-money .09*** .07***
Value of vested and unvested SO .06*** .05***
Ever exercised SO and cashed in 3 11.07*** 6.36*
Value of SO cashed in 3 .11*** .06*
Perceived employee influence over
future stock price
.17*** .16***
Expected stock price in 1 year .29*** .27***
Expected stock price in 1 year
– no expectations
-
29.14*** -27.22***
R2 .20 .21 .24 .22 .31 .34
ΔR2 (compared to Model 1) .01 .04 .02 .11 .14
n = 1039. 1 Omitted job category: executive.
Proportion of between-company variance in stock options enthusiasm = .18
and in expected financial gain from stock options = .12 . 2 Stock price change in preceding year is at the company-level of analysis. 3 In current company.
* p < .05
** p < .01
*** p < .001
49
Table 5
Results of the HLM Analyses for Hypotheses 10 - 13
Perceived
Understanding of
Stock Options
Objective Stock Options Knowledge
Variables Model 1 Model 2 Model 1 Model 2 Model 3 Model 4 Model 5
Intercept 3.92*** 2.92*** 4.77*** 2.56 3.70 4.02* 1.82
Gender (0, „male‟; 1, „female‟) -.24*** -.19*** -.22** -.21** -.23** -.15 -.15
Age -.00 -.00 -.00 -.00 -.00 -.00 -.00
Race (0, „white‟; 1, „non-white‟) -.08 -.01 -
.34*** -.35*** -.34*** -.29***
-.29**
Education .05* .01 .17*** .17*** .17*** .15*** .15***
Organizational tenure .01* .01* .00 .00 -.01 -.01 -.01
Part-time .40 .40 .39 .36 .41
Salary .05* .02 .13*** .14*** .11** .10** .08**
Job1
Hourly employee -.35* -.23 -.53* -.52* -.44 -.34 -.37
Sales representative -.28 -.23 -.26 -.25 -.20 -.23 -.20
Salaried employee -.33* -.23 -.18 -.18 -.11 -.05 -.02
Supervisor -.31* -.29* -.02 -.01 .02 .07 .07
Senior manager -.13 -.13 .01 .02 .03 .03 .02
Satisfaction with pay -.01 .00 -.07 -.07 -.07 -.05 -.04
Satisfaction with supervisor .06* .06* -.01 -.00 .00 -.02 -.01
Intrinsic job characteristics .05 .04 .06 .05 .07 .06 .05
Perceived participation in
decision-making .05 .08 -.10 -.10 -.08 -.06 -.03
Objective SO knowledge .21***
Company communications
about SO plan 2 .44 .28
Ever exercised SO .40*** .35***
Personal interest in financial affairs .45*** .45***
R2 .09 .19 .14 .14 .15 .21 .22
ΔR2 (compared to Model 1) .10 .00 .01 .07 .08
n = 1039. 1 Omitted job category: executive.
Proportion of between-company variance in stock options knowledge = .16 . 2 Company communication about stock options is at the company-level of analysis.
* p < .05
** p < .01
*** p < .001