Incentive or Gift? How Perception of Employee Stock Options Affects Performance

The basic theory of why companies issue stock options to their employees is fairly simple: Profit from exercising those options creates what employers hope is an incentive that will motivate employees. But new research by Wharton professor Peter Cappelli and senior fellow Martin J. Conyon finds that the practice only impacts employee performance when workers earn a sizable payoff from exercising their stock options. Even then, the employees view the options not as an incentive, but as a gift they feel compelled to repay by working harder.

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