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Market-Based Solutions to Vital Economic Issues
Research
Jan 1, 2018

The Option to Quit: The Effect of Stock Options on Turnover

Abstract

We show that in the years following a large broad-based employee stock option (BBSO) grant, employee turnover falls at the granting firm. We find evidence consistent with a causal relation by exploiting unexpected changes in the value of unvested options. This reduction in turnover seems to be temporary because turnover appeared to increase in the third year following the year of the adoption of the BBSO plan. The increase three years post-grant is equal in magnitude to the cumulative decrease in turnover over the three prior years, suggesting that long-vesting BBSO plans delay, instead of prevent, turnover.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals

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