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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 35, No. 1, pp.59-87
ISSN: 1225-0279 (Print)
Print publication date 28 Feb 2022
Received 27 Nov 2021 Accepted 10 Feb 2022
DOI: https://doi.org/10.22904/sje.2022.35.1.003

Determinants of Stock-based Incentives: Evidence from Korean Firm-level Data

Sun-Moon Jung ; Jae-Young Kim
Sun-Moon Jung, College of Business Administration, Seoul National University sunmoonj22@snu.ac.kr
Jae-Young Kim, Corresponding Author, Department of Economics, Seoul National University jykim017@snu.ac.kr

JEL Classification: M12; M21

Abstract

Firms often use stock-based incentives (SBIs) to attract and motivate talented employees. Thus, the question of how and on what basis to determine SBIs is an important issue for a firm. In this paper, we study determinants of SBIs based on data of Korean-listed firms in 2002-2018. As a measure of SBIs, we use Portfolio Delta, the sum of Stock Delta, which represents incentives from stockholdings, and Stock Option Delta, which represents incentives from unexercised option awards. Our results show that provision of SBIs depends on both firm and individual characteristics. In particular, firm characteristics such as size, risk, and growth prospects of a firm are major determinants of overall SBI provisions. We have also found that, for business executives, individual characteristics such as careers and tenures are important determinants of SBIs. In particular, for top executives, SBIs are employed as substitutes for promotion-based incentives, whereas for newly appointed executives with relatively longer tenures, SBIs are provided as common and general incentives. These findings are consistent with results in the existing literature.

Keywords:

stock-based incentives, executive compensation

Acknowledgments

The authors thank Soyoung Kim and two anonymous referees for helpful comments on the earlier version of this paper. Financial support from the Center for National Competitiveness in the Institute of Economic Research of Seoul National University is gratefully acknowledged.

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