Employee stock options and company performance on the Oslo Stock Exchange

Abstract

This paper investigates the usage of employee stock options for the largest companies listed on the Oslo Stock Exchange in the period 2009 to 2019, and the effect granting employee stock options has on long-term performance. We find evidence that granting employee stock options positively affects accounting-based performance four and five years after the grant. The positive effect is particularly strong when employee stock options are granted at-themoney, and the effect is most prominent four years after grant. The effect is curvilinear, and we locate both the relative value and number of employee stock options that optimizes performance, though the findings suggest granting extreme values that are beyond the observed praxis. We further find that companies granted options out-of-the-money below optimal levels, making the praxis inefficient. Consequently, our findings indicate that practitioners should consider granting more employee stock options at-themoney with higher value to enhance long-term performance. The findings from this study are in line with international literature, and we provide, to the best of our knowledge, the first evidence of employee stock options having a positive effect on long-term performance in a Norwegian context.