Interestingly, the study by researchers at the Wharton School of Business found that increased ratios for executives and hourly employees did not improve performance.
Research focused on shareholder returns in 1999 and 2000 as they correlated with equity grants for 1998 and 1999. All the companies surveyed issued options to a broad cross-section of employees and 97% of these made grants at least once per year.
The study found that:
- larger firms have lower dilution from options but higher ratios of option value to salary.
- companies with more cash and less debt provide larger grants
- while volatility, tax rates, and research expenditures, showed no relationship to the size of grants
When the ratio of equity grant value to salary was increased by 20% in the groups below, the following effects on the share price were found:
- for managers below the senior executive level, an increase of 4.7% in value
- for technical employees, a 5.1% increase,
- non-technical and non-executive employees, a 2.7% rise, while
- increases in grants to top management had no impact on share performance.
It should be noted that the period studied was an unusual one in stock market history, and stock prices are not a perfect performance measure as they are subject to so many other factors outside of a companies business practices.