New Study Shows Employees Still Value Options

In the most comprehensive study to date on employee attitudes towards stock options, Gerry Ledford, Matthew Lucy, and Peter LeBlanc of Sibson Consulting have found that stock options appear to be a very powerful employee benefit. As part of the "Rewards of Work" study cosponsored with WorldatWork, a large national sample of employees was surveyed in both 2000 and 2003. The 2003 study looked at responses from 1,105 employees, of whom 169 received options. Seventy-five percent of the respondents said that the stock option plan "sends a message that every employee is an owner"; 53% said that stock and stock options "increase my loyalty to the company"; and 38% said "I work much harder because I want my stock and options to increase in value." While 38% may not seem a high percentage, given that many employees are not susceptible to any kind of financially induced behavior change at work (they already work as hard as they can, or they are just hard to motivate period), it is actually very impressive that four out of ten employees can be induced to change. Given the often lackluster efforts of companies to communicate plans (at least compared to most ESOP companies), a surprising 70% of the respondents thought their company did a good job of communicating the plan, and two-thirds thought that the distribution of stock options between management and non-management was fair. These numbers were statistically indistinguishable from responses in 2000, despite the dramatic fall in stock price.

The impact of options on turnover provided somewhat mixed data. Just one-third of the respondents said that stock options were a critical factor in choosing a company to work for, but stock ownership turned out to be the most compelling inducement studied to get people to change jobs. One-fourth of the respondents would leave their jobs for just $500 worth of stock; half would leave for $1,000. But these data apply to all employees sampled, not just those with ownership. For employees who do own stock, it would be much harder to use equity to lure them to another company. It would, for instance, take $10,000 to induce employees who already own stock to move. Together, these results suggest that ownership is both a powerful lure to those without equity and a strong glue for those with it.

As would be expected, the greater the value of options, the stronger the response. If the value of options is greater than one year's pay, for instance, 52% of employees say they work harder because of it, while if it is less than half, only 33% do.

The results are strikingly consistent with those the NCEO found in its 1980s survey of 3,700 ESOP participants reported in the book Employee Ownership in America. Using very similar questions, we found that ESOP participants had somewhat more positive views of ownership that options recipients, but the difference was not large.