Social Exchange and the Effects of Employee Stock Options

[We’re pleased to welcome authors Peter Cappelli of the University of Pennsylvania, Martin Conyon of Bentley University, David Almeda of Kronos Incorporated. They recently published an article in the ILR Review entitled “Social Exchange and the Effects of Employee Stock Options,” which is currently free to read for a limited time. Below, they describe the motivation for this research.

The interesting thing about our paper is that both the practice and the research on topics like compensation and rewards is centered on the idea that incentives are the key to motivation. We design rewards to make this happen.

What we investigate is a different motivation, and that is the sense of obligation we might feel to an organization for doing something good for you. In this case it is the granting of stock options to lower-level managers, which the company presents as a way to share in the success of the company’s performance. We can sort out that effect from the effect of incentives, and we find that this obligation has a much bigger effect on employee performance than the effect of an incentive to help the business so the employees will see a bigger payoff from stock options.

The point of this is that companies may be going about this all wrong. Doing nice things for employees can be a terrific way to get them to perform better.

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