DOL Public Hearing
The January 3, 2011 Employee Ownership Update is online and discusses the following:
- New Study Shows Broad-Based Stock Option Plans Improve Performance
- Public Hearings on DOL Proposal to Define ESOP Appraisers as Fiduciaries Scheduled
- Useful Analysis of Impact of 2010 Tax Act on Equity Compensation
- Complimentary ShareComp Registration
The Update discusses the March 1, 2011 DOL Public Hearing and Extended Comment Period and a study, Incentives, Targeting and Firm Performance: An Analysis of Non-Executive Stock Options, that found that companies that granted broad-based stock options saw a significant improvement in ROA:
Consistent with economic theory, we find that the incentive-performance effect is observed only in smaller firms, and in firms with higher growth options per employee. Finally, we find that that this incentive-performance effect is concentrated solely in firms that grant options broadly to non-executive employees, supporting the argument that options may induce cooperation or monitoring among co-workers, in addition to other known effects such as sorting and retention of employees.
To the best of our knowledge, these findings represent the first evidence of a net benefit from the implied incentives of employee stock options on firm performance, and as a result, our study has broad implications for workforce compensation overall. Importantly, we show that free-riding is not the overriding force that some theoretical treatments of this topic suggest. Rather, our findings suggest that while free-riding may be present to some extent, mutual monitoring by co-workers may be the stronger force.It also shares a link to eight stock compensation and financial planning points as a result of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.