Incentive effects of stock purchase plans |
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Authors: | Sanjai Bhagat James A. Brickley Ronald C. Lease |
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Affiliation: | University of Utah, Salt Lake City, UT 84112, USA |
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Abstract: | Financial economists are interested in whether alternative compensation plans are adopted primarily for tax, incentive or signaling reasons. As most compensation plans have tax implications, examining for other effects is difficult. In this paper we examine the stock market reaction to employee stock purchase plans which are ‘non-tax advantageous’ and adopted for incentive/signaling reasons. The results suggest that (1) equity-based compensation schemes have a positive effect on shareholder wealth for reasons other than tax reduction, (2) a motive for adopting these plans is to align managerial and shareholder interests, and (3) equity ownership motivates key executives more than subordinate employees. |
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