Findings in the exploratory survey aligned almost perfectly with theoretical findings. However, the sample sized used was too small, and therefore results should not be generalized to other populations. Recent articles published about ESOs stated that there is an increase of universal grants in start-ups compared to the ESO grants in the 1990s. Through the exploratory survey it was found most but not all grant universally. The most surprising finding was that founders / co-founders were the only group to reject universal grants. Granting price also was surprising, as granting below FMV can cause some tax implication for individuals and companies, yet many respondents chose to do so.
Literature outlines the flexibility ESOs have for the employee and company. Implementing an ESOP does not make permanent cash obligations for the company. But, after asking respondents about the main motivation to implement an ESOP, a small minority stated cash or liquidity reasons.
This begs the question: does management fully understand the benefit of ESOPs and the flexibility they bring? Expanding this research to all geographical locations around the world and gathering more responses would be beneficial to further validate the findings and ensure better reliability.
The results found from this thesis can provide start-ups in the high technology and other industries a guideline on how other companies are implementing ESOPs and the characteristics of ESOPs.
Especially in the high technology industry, where most of the start-ups are headed by non-business people in the early stages, this thesis can provide general context, background, and understanding of this complex topic.
The work itself was far from perfect. The number of responses received in this study was too small to generalize to other populations. The target population was also very specific, making it hard to collect a numerous responses. The survey itself was very long. Instead of trying gather all information about characteristics of plans and opinions in one survey, it might have been more successful if it was split into two. One survey should have asked about characteristics, and the second could have been targeted to just management / board members to gather their opinions.
In addition, the way the survey was sent out could have been done more methodically, instead of trying to pull e-mails from LinkedIn and through connections of the thesis writer.
It would be interesting to examine the employee perspective on employee stock options. An analysis of management versus employee opinions would be beneficial, as the differences between management’s perceived benefits and what the employees view as real benefits could be pinpointed. With this information, an ideal incentive plan that could combine management’s motivation and goals with the employees’ perceptions could be created. This thesis focuses only on the management opinion, which is half of issue. How employees themselves view the options affect the outcome of the program and the company.
Numerical analysis on how granting ESOs affect public companies’ stock prices should be examined to provide a more in depth view how ESOs affect firm valuation. It could bring valuable insight whether the cost of implementing ESOs are worth the perceived motivational and well-bring benefits. The economic cost of implementing versus motivational or intrinsic benefits would be a key piece of information companies could then use when debating to use an equity incentive program. In addition, it would be interesting to examine how companies are recording the cost of ESOPs and forecasting the effects on firm valuation.
REFERENCES
Accion, 2017. Startup Employee Stock Options Plans (ESOPs): Overview and Best Practices.
[Online]
Available at:
https://www.accion.org/sites/default/files/Accion%20Venture%20Lab%20-%20ESOP%20Best%20Practices.pdf [Accessed 28 December 2017].
Amaratunga, D., Baldry, D., Sarshar, M. & Newton, R., 2002. Quantiative and qualiative research in the built enviroment: application of "mixed" research approach. Work Study, 51(1), pp. 17-31.
Bachelder III, J. E., 2014. What has Happened to Stock Options?. [Online]
Available at: https://corpgov.law.harvard.edu/2014/10/02/what-has-happened-to-stock-options/
[Accessed 28 December 2017].
Bodie, Z., Kaplan, R. S. & Merton, R. C., 2003. For the Last Time: Stock Options Are an Expense.
March.
Bonner, S. E., Hastie, R., Sprinkle, G. B. & Young, S. M., 2000. A Review of the Effects of Financial Incentives on Performance in Laboratory Tasks: Implications for Managment Accounting. Journal of Management Accounting Research, Volume VII, pp. 19-64.
Damodaran, A., 2005. Employee Stock Options (ESOPs) and Restricted Stock: Valuation Effects
and Consquences. [Online]
Available at: http://people.stern.nyu.edu/adamodar/pdfiles/papers/esops.pdf [Accessed 04 January 2018].
Deloitte, 2017. IFRS 2- Share-based Payment. [Online]
Available at: https://www.iasplus.com/en/standards/ifrs/ifrs2
[Accessed 07 January 2018].
Dictionary.com, LLC, 2017. Incentive. [Online]
Available at: http://www.dictionary.com/browse/incentive
[Accessed 27 December 2017].
Dictionary, B., 2017. Business Dictionary. [Online]
Available at: http://www.businessdictionary.com/definition/tangible-rewards.html [Accessed 26 December 2017].
Diem, K. G., 2002. A Step-by-Step Guide to Developing Effective Questionnaires and Survey Procedures for Program Evaluation & Research. [Online]
Available at: http://cahnrs.wsu.edu/fs/wp-content/uploads/sites/4/2015/09/A-Step-By-Step-Guide-to-Developing-Effective-Questionnaires.pdf
[Accessed 02 February 2018].
Dykes, T., 2012. Establishing Fair Market Value for Purposes of Section 409A and Stock Option
Grants. [Online]
Available at: https://www.theventurealley.com/2012/03/establishing-fair-market-value-for-purposes-of-section-409a-and-stock-option-grants/
[Accessed 27 December 2017].
Elmer, V., 2014. This tech startup uses a simple formula to decide how much stock to give
employees. [Online]
Available at: https://qz.com/198871/this-tech-startup-uses-a-simple-formula-to-decide-how-much-stock-to-give-employees/
[Accessed 09 January 2018].
Ernest Young India, 2014. EY Stock Based Incentive Survey 2014. [Online]
Available at: http://www.ey.com/Publication/vwLUAssets/EY-stock-based-incentive-survey-2014/$FILE/EY-stock-based-incentive-survey-2014-the-results.pdf
[Accessed 16 January 2018].
Feldman, S. J., 2005. Principles of Private Firm Valuation. 1st ed. Hoboken, New Jersey: John Wiley & Sons, Inc..
Financial Times, 2018. Defintion of Principal/Agent Problem. [Online]
Available at: http://lexicon.ft.com/term?term=principal/agent-problem [Accessed 10 January 2018].
Harroch, R., 2016. How Employee Stock Options Work in Start-up Companies. [Online]
Available at: https://www.forbes.com/sites/allbusiness/2016/02/27/how-employee-stock-options-work-in-startup-companies/#74a7a1446633
[Accessed 28 December 2017].
Holm, K. & Hoffman, K., 2015. Private Companies Redesign Their Employee Equity Plans as IPOs
Near. [Online]
Available at: https://radford.aon.com/insights/articles/2015/Private-Companies-Redesign-Their-Employee-Equity-Plans-as-IPOs-Near
[Accessed 09 January 2018].
Holm, K. & Hoffman, K., 2017. Following Snap’s IPO, We Met with 40 Private Technology Companies to Discuss the Competition for Talent in Today’s Hot Market. [Online]
Available at: https://radford.aon.com/insights/articles/2017/Competition-for-Talent-in-Today-Hot-Market
[Accessed 09 January 2018].
Howell, D., 2014. The OPM Backsolve Valuation Method for Equity Compensation. [Online]
Available at: https://www.linkedin.com/pulse/20141209165042-38136100-equity-compensation-opm-backsolve-valuation-method/
[Accessed 7 January 2018].
Hull, J. & White, A., 2002. How to Value Employee Stock Options. [Online]
Available at: http://www-2.rotman.utoronto.ca/~hull/downloadablepublications/esoppaper.pdf [Accessed 31 December 2017].
Index Ventures, 2017. Rewarding Talent: A guide to stock options for European entrepreneurs.
[Online]
Available at: https://www.indexventures.com/rewardingtalent
[Accessed 23 January 2018].
IRS, 2017. 409A Nonqualified Deferred Compensation Plans. [Online]
Available at: https://www.irs.gov/retirement-plans/409a-nonqualified-deferred-compensation-plans
[Accessed 08 January 2018].
Katz, J. O. & McCormick, D. L., 2005. Advanced Option Pricing Models: An Empirical Approach to Valuing Options. USA: McGraw Hill Companies Inc..
Knowledge at Wharton, 2006. How New Accounting Rules Are Changing the Way CEOs Get Paid.
[Online]
Available at: http://knowledge.wharton.upenn.edu/article/how-new-accounting-rules-are-changing-the-way-ceos-get-paid/
[Accessed 31 December 2017].
Kruse, D. L., Freeman, R. B. & Blasi, J. R., 2010. Shared Capitalisim at Work. Employee Ownership, Profit and Gain Sharing, and Broad-Based Stock Options. 1st ed. Chicago: The Univeristy of Chicago Press.
Kumar, P., Yadav, P., Kumar, P. & Srivastav, P. K., 2013. Organization Wide Incentive Plans.
[Online]
Available at: https://www.slideshare.net/ujjmishra1/organisation-wide-incentive-plans [Accessed 29 11 2017].
Lang, M., 2004. Employee Stock Options and Equity Valuation. USA: The Research Foundation of CFA Insitute.
Lowtizsch, J. & Hashi, I., 2014. The Promotion of Employee Ownership and Participation, Brussels: European Union.
Mora, M., 2011. Validity and Reliability in Surveys. [Online]
Available at: https://www.relevantinsights.com/validity-and-reliability/
[Accessed 02 February 2018].
NCEO, 2017. Employee Stock Options Fact Sheet. [Online]
Available at: https://www.nceo.org/articles/employee-stock-options-factsheet [Accessed 28 December 2017].
Olagues, J. & Summa, J. F., 2010. Getting Started in Employee Stock Options. 1st ed. Hoboken, New Jersey: John Wiley & Sons, Inc..
Research Methodology, 2017. Deductive Approach (Deductive Reasoning). [Online]
Available at: https://research-methodology.net/research-methodology/research-approach/deductive-approach-2/
[Accessed 16 January 2018].
Schlegel, J., 2017. Stock Grant Sizes in Pre-IPO Tech Companies. [Online]
Available at: https://www.mystockoptions.com/articles/index.cfm/objectid/04079F1B-A394-11D4-AF73000102460375
[Accessed 08 January 2018].
SEC, 2014. Employee Stock Option Plans. [Online]
Available at: https://www.sec.gov/fast-answers/answers-empopthtm.html [Accessed 28 December 2017].
Simon, M., 2018. Stock Options 101: The Basics. [Online]
Available at: https://www.morganstanley.com/spc/knowledge/managing-wealth/wealth-management-for-stock-plan-participants/stock-options-101--the-basics.html
[Accessed 09 January 2018].
Somerville, H., 2017. U.S. tax break could push startups to share the wealth. [Online]
Available at:
https://www.reuters.com/article/us-usa-tax-startups/u-s-tax-break-could-push-startups-to-share-the-wealth-idUSKBN1EG1B4 [Accessed 27 December 2017].
Thayer-Hart, N., Dykema, J., Schaeffer, N. C. & Stevenson, J., 2010. Survey Fundamentals: A
Guide to Designing and Implementing Surveys. [Online]
Available at: https://oqi.wisc.edu/resourcelibrary/uploads/resources/Survey_Guide.pdf [Accessed 02 February 2018].
The International Society for Performance Improvement (ISPI) and the SITE Foundation, 2002.
Incentives, Motivation and Workplace Performance: Research & Best Practices, New York: SITE Foundation.