Alexei Oulanov, PhD, MBA, MSLIS Medgar Evers College/ City
University of New York (USA) [email protected]
Slide 2
A financial incentive that significantly influences
organizational behavior is stock options (Macsai, 2007). This
financial instrument remains a powerful tool for building employee
loyalty despite Enron disaster and the recent significant policy
change by the Financial Accounting Standards Board (FASB) requiring
its expensing on the companys income statement (Cortese-Danile,
2013; Spalt, 2013; Dunford, et al., 2008; Marlor, 2007; 401(k)
Advisor, 2006). Initially, stock options were used to motivate
upper management and key experts, resulting in high-variance bets
that brought more losses rather than gains (Sanders & Hambrick,
2007). Albeit, we must admit that managerial opportunism (Isagawa,
2007) might sometimes be beneficial for the company. Subsequently,
this financial derivative emanated into the masses and because of
that move became very prevalent (Udell, 2008), and possibly more
efficient. The power of the affect that stock options have on the
employees was also noted abroad, and as a result this powerful tool
was adopted in some foreign economies, including Germany and India
(Sanders & Tuschke, 2007; Carberry, 2007).
Slide 3
According to the survey conducted amongst the MEC/CUNY Library
faculty and staff 53.9% of the respondents think that it is a good
idea to give stock options of the employer to the employees. A
qualitative comment indicated that it motivates the employees to
work hard. (This survey was offered online through SurveyMonkey.com
and included 13 respondents. SurveyMonkey served as a kind of
randomizing instrument. The survey was absolutely anonymous, and
the respondents were the people who volunteered to respond. This
survey was piloted with one of the professors at the MEC/CUNY
library. The survey can be accessed at
http://www.surveymonkey.com/s.aspx?sm=M8icM_2
b8ritfSkItk8TirNw_3d_3d.
http://www.surveymonkey.com/s.aspx?sm=M8icM_2
b8ritfSkItk8TirNw_3d_3d
Slide 4
Slide 5
Some 46.2% agreed, 15.4% strongly agreed, 7.7% were undecided,
15.4% disagreed, and 15.4% strongly disagreed that they would
prefer stock options where [they] could defer paying a tax until
[they] sell the shares. Importantly, in this situation the employer
issuing these stock options will not receive any tax deduction. In
other words, they would prefer Incentive Stock Options (ISOs). This
is one of the two most significant questions of the survey masked
among other less important items. Here we can see that the majority
did agree that they would prefer ISOs. However, their convictions
on this matter are not as strong as their opinion that ESOs should
not be given to the management and the experts only. Here they only
agree, not strongly agree. Furthermore, the percentages of
disagreeing and strongly disagreeing are also significant, with
some respondents taking a neutral stand. The only one qualitative
comment indicates that it is too complicated to make a decision.
The responses on NSOs are somewhat reciprocal, with 38.5%
disagreeing that deferring paying a tax is less important than
giving the employer an opportunity to have a tax deduction on the
unrealized profits. (This is the second more significant item). The
only qualitative comment available here is the same as for the ISO
item, verbatim. In the following item 69.2% indicated that they do
want more information on the ESOs.
Slide 6
Slide 7
Slide 8
As a part of inferential quantitative assessment, Pearsons test
showed three interesting correlations. The one with the highest
significance (p=.007) and pretty high coefficient of.706 is between
the preference for ISOs and need to have more information on ESOs.
The second one is between the preference for NSOs and degree of
familiarity with ESOs (.560; p=.047). The more familiar respondents
with the subject, the more likely they are to prefer NSOs, and
possibly employers interests over their own (in terms of ESOs). The
third is a negative one between NSOs and the Age Group (-.612;
p=.026). The younger the respondents, the more likely they are to
prefer the NSOs. By the way, as mentioned above, over 55 is the
biggest age group, that might be one of the reasons for supporters
of ISOs outnumbering the supporters of NSOs. Also, respondents from
over 55 might be more concerned with their retirement situation,
and the younger ones with the employers future. The regression
analyses were also run between demographics as predictor variables
and preferences for ISOs or NSOs as dependent variables. The
Multiple R=.589 and R Square=.347 for the former, and Multiple
R=.781 and R Square=.610 for the latter. That means that 34.7% of
variance in the preference of ISOs and 61% of variance in the item
on NSOs are accounted for by the Age, Gender, Education, and
familiarity with ESOs.
The present research triangulated with a variety of
quantitative and qualitative components have shown that ESOs are
indeed a strong financial incentive that has a potential for
significant influence of organizational behavior and builds
employee loyalty, especially amongst younger and more financially
savvy employees. Another important finding is that while people
generally have preference for ISOs, this preference is not absolute
and there are lots of folks out there who will put the interests of
the employer over their own and will be perfectly motivated by the
NSOs. These derivative products can be successfully used in a
variety of organizational settings. These settings primarily would
include profit-oriented environment. The perspective of the library
faculty in the academia maybe similar to the representatives of the
same trade in the corporate environment. The views and perceptions
of the academic librarians might be relevant when considering the
perceptions of the librarians in the corporate libraries and
information centers. Additionally, while ESOs currently can be used
only in business world, in theory, there might be a possibility of
developing a similar equivalent financial instrument that could
work as an incentive in the non-for-profit environment.
Slide 18
Berg, B. (1998). Qualitative research methods for the social
sciences. Needham Heights, MA: Allyn & Bacon. Braham, L.
(2007). Options: Have an exit plan. Business Week, 82-84. Carberry,
E. J. (2007). Exploring the limits of convergence in the global
technology sector: The institutionalization of employee stock
option programs in India. Conference Papers -- American
Sociological Association. Cortese-Danile, T. M., Fitzsimons, A.,
& Latshaw, C. (2013). Stock Option Alternatives. CPA Journal,
83(8), 56-60. Dunford, B. B., Oler, D. K., & Boudreau, J. W.
(2008). Underwater stock options and voluntary executive turnover:
A multidisciplinary perspective integrating behavioral and economic
theories. Personnel Psychology, 61(4), 687-726. Isagawa, N. (2007).
A theory of unwinding of cross-shareholding under managerial
entrenchment. Journal of Financial Research, 30(2), 163-179.
Macsai, D. (2007). Powerful profs. Business Week Online,
27-27.
Slide 19
Marlor, B. G. (2007). It's better to 'cash out' than 'burn
out.' Enterprise/Salt Lake City. Ofdict.com.
Optiontradingpedia.com. Recent stock-drop litigation: The impact on
plan fiduciaries.(2006). 401K Advisor, 13(8), 4-5. Rogers, C. R.
& Farson, R.E. (2007). Active listening. In J. S. Osland, et
al. (Ed.), The organizational behavior reader. (8 th ed.), (pp.
278-290). Upper Saddle River, NJ: Pearson/Prentice Hall. Sanders,
W. G., & Hambrick, D. C. (2007). Swinging for the fences: The
effects of CEO stock options on company risk taking and
performance. Academy of Management Journal, 50(5), 1055-1078.
Sanders, W. G., & Tuschke, A. (2007). The adoption of
institutionally contested organizational practices: The emergence
of stock option pay in Germany. Academy of Management Journal,
50(1), 33-56. Spalt, O. G. (2013). Probability Weighting and
Employee Stock Options. Journal Of Financial & Quantitative
Analysis, 48(4), 1085-1118. doi:10.1017/S0022109013000380 Udell, S.
(2008). Understanding stock options. American Journal of Family
Law, 22(1), 23-27.
