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Incentives of possessors of human capital: stock options.

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Presentation on theme: "Incentives of possessors of human capital: stock options."— Presentation transcript:

1 Incentives of possessors of human capital: stock options

2 Various arrangements of corporate control Ownership: Cash- flow rights Ownership: Control rights“ Modern CorporationShareholders PartnershipEmployeesEmployees “ New Enterprise (integration problem) Depend on type of complementarity German Codetermination ShareholderEmployees Venture CapitalDepend on contract between capitalist and entrepreneur University ResearchResearchersUniversity

3 The ”new enterprise”: The main task of managements to protect the integrity of the firm by building complementarities between the person or a unit that the firm seeks to have power over and the firm Corporate control through external owners (shareholders) may become inefficient Complementarities exist when the unit and the firm can together create more value than they can going their own separate ways

4 Primary aim: look into different systems for partial employee ownership Employee stock ownership: Employees have claim on some of the residual earnings, while the control of firms is not generally allowed Convenient to think about employee stock ownership in terms of an employer, who deposits stock in a trust fund that holds the stock for the benefit of the employees Often it is a reserve for the employees’ pensions.

5 Costs of Collective Decision Making: The benefits of letting employees participate in voting do not compensate for costs of the fact that employees are far more likely than investors to differ among themselves concerning the firm’s policy (heterogeneous preferences increase bargaining costs)

6 Difference as compared with ’influence costs’: Conflicts about payments and wages concern monitoring the work, while solutions of conflicts between employees concern egalitarian practices. Egalitarian practices: objectively and widely accepted basis for making decisions

7 One question arising: Is the need of protecting the integrity of the firm an important factor in determining the distribution of employee ownership between different types of firms and industries?

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