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Do Vesting Requirements Increase the Incentive Effects of Stock Compensation for Rank-and-File Employees?

Clark, Jeffrey Douglas (2019) Do Vesting Requirements Increase the Incentive Effects of Stock Compensation for Rank-and-File Employees? Doctoral Dissertation, University of Pittsburgh. (Unpublished)

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My dissertation consists of three chapters. The first chapter's primary purpose is to introduce readers to my dissertation. In it, I note the importance of research on motivating employees to provide effort. I also introduce my specific topic, how vesting requirements moderate the effectiveness of stock-based compensation in motivating employee effort, and discuss challenges that research confront when studying employee effort.
In the second chapter, my co-authors, Willie Choi and Adam Presslee, and I identify seven factors researchers should consider when designing a real-effort task to ensure a strong, positive, and consistent link between participants' effort intensity and their performance. With these factors in mind, we design an experiment to test for incentive effects on effort and performance using three effort-intensive tasks: the decode task, the letter search task, and the slider task. Contrary to our expectation, we find significant variation across tasks in our ability to detect incentive effects and limit the effects of the seven factors, with the strongest evidence coming from the slider task. Our list of factors helps researchers design effort-intensive tasks that allow them to conduct a more effective test of theory. Following this conclusion, I use the slider task to effectively test the theories I use in the third chapter of this dissertation.
In the third chapter, I provide evidence that firms commonly compensation rank-and-file employees with restricted stock that has vesting requirements, despite economic arguments that it is a less effective incentive than cash. Using an experiment, I investigate whether restricted stock compensation can motivate greater employee effort than other economically equivalent contracts. First, I demonstrate individuals view restricted stock compensation as a penalty contract. Second, I leverage research on framing and the endowment effect to predict a penalty-framed stock contract (representing restricted stock) will be valued more highly and motivate greater effort than an economically equivalent penalty-framed cash contract or an economically equivalent bonus-framed stock or cash contract. The results of my experiment are consistent with this prediction. That is, I find effort is greatest under a contract with the features of restricted stock with vesting requirements, which helps explain the prevalence of such compensation arrangements for rank-and-file employees.


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Item Type: University of Pittsburgh ETD
Status: Unpublished
CreatorsEmailPitt UsernameORCID
Clark, Jeffrey Douglasjeff.clark@pitt.edujdc1140000-0002-6989-8731
ETD Committee:
TitleMemberEmail AddressPitt UsernameORCID
Committee ChairMoser, Donald
Committee MemberChoi, Jongwoon (Willie)
Committee MemberEvans III, John
Committee MemberHoffman, Vicky
Date: 26 June 2019
Date Type: Publication
Defense Date: 22 April 2019
Approval Date: 26 June 2019
Submission Date: 14 May 2019
Access Restriction: No restriction; Release the ETD for access worldwide immediately.
Number of Pages: 109
Institution: University of Pittsburgh
Schools and Programs: College of Business Administration > Accounting
Degree: PhD - Doctor of Philosophy
Thesis Type: Doctoral Dissertation
Refereed: Yes
Uncontrolled Keywords: effort; framing; bonus; penalty; cash; stock; endowment effect
Date Deposited: 26 Jun 2019 18:04
Last Modified: 26 Jun 2019 18:04


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