TY  - JOUR
AU  - Hallock,Kevin F.
AU  - Olson,Craig
TI  - The Value of Stock Options to Non-Executive Employees
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11950
PY  - 2006
Y2  - January 2006
UR  - http://www.nber.org/papers/w11950
L1  - http://www.nber.org/papers/w11950.pdf
N1  - Author contact info:
Kevin F. Hallock
ILR School
Cornell University
391 Ives Hall (East)
Ithaca, NY 14853
Tel: 607/255-3193
E-Mail:  kfh7@cornell.edu

Craig Olson
University of Illinois
Champaign, IL  61820
E-Mail: caolson@uiuc.edu
AB  - This study empirically investigates the value employees place on stock options using information from the option exercise behavior of individuals. Employees hold options for another period if the value from holding them and reserving the right to exercise them later is higher than the value of exercising them immediately and collecting a profit equal to the stock price minus the exercise price. This simple model implies the hazard describing employee exercise behavior reveals information about the value to employees of holding options another time period. We show the parameters of this model are identified with data on multiple option grants per employee and we apply this model to the disposition of options received in the 1990s by a sample of over 2000 middle-level managers from a large, established firm outside of manufacturing. Exercise behavior is modeled using a random effects probit model of monthly exercise behavior that is estimated using simulated maximum likelihood estimation methods. Our estimates show there is substantial heterogeneity (observed and unobserved) among employees in the value they place on their options. Our estimates show most employees value their options at a value greater than the option's Black-Scholes value.
ER  -