| Agency theory assumes that employees uniformly and consistently interpret stock options to be incentives that motivate them to act in the best interests of shareholders. This dissertation examines this assumption in an effort to better understand the underlying, employee-level processes of incentive compensation that are often neglected by agency theorists. In a case study of a fast-growth software firm, this dissertation inductively explored how employees at various levels in the organization interpreted stock options over an 11-year period. The findings reveal that employees had multiple meanings of stock options that were far more complex and dynamic than agency theory assumes. Three factors emerged from the analysis that were critical for explaining how employees' interpretations evolved over time: (1) employees' social interactions regarding stock options, (2) the public discourse around stock market issues, and (3) the economic, industry, and organizational contexts in which employees were embedded. The findings challenge the notion that stock options have any uniform, stable meaning, such as incentive, by illustrating how the meanings of stock options were socially constructed within the specific context of the time. These findings are likely to help explain why agency researchers have not been able to find a strong and consistent relationship between incentive compensation and firm performance, despite decades of research. Using the case study findings as well as other theoretical perspectives from the organizational literature, this study proposes conditions under which employees are less likely to interpret stock options in desirable ways. Finally, this dissertation demonstrates how the use of qualitative, interpretive methods can introduce new avenues of inquiry and theorizing on incentive compensation, thereby complementing the firm-level archival studies that have dominated the agency literature. |
