Principal Topic

Start-up companies introduce stock option programs with the goal of increasing the motivation of their employees. A motivational effect can only be caused if there is a clear connection between the individual working effort and the success of the company. Thus, two recommendations can be made: (1) these programs are to be limited to a small number of executives, really having an influence on the profit of the company. (2) the variable part of their payment should be relatively high. This bears some problems, if—besides the extrinsic motivation—the intrinsic motivation is also considered. A substitution effect may occur: employees are getting paralyzed by these systems, because they loose the joy of their work and only aim at making as much money as quickly as possible.

Method

Our research methodology includes the systematic collection of empirical data as well as an indepth, explorative case study of a young start-up company. On the basis of some theoretical considerations concerning the substitution effect and an empirical capturing of the stock option programs, which have been introduced by the companies listed on the “Neuen Markt,” the German equivalent to the NASDAQ in the U.S. Data regarding the composition of applied incentive systems of German companies was gathered by a standardized questionnaire and by the analysis of the respective company documents. The indepth case study was carried out by several face-to-face interviews.

Results and Implications

These reflections may indicate that the introduction of equity-based incentive systems may be connected with a few puzzles, which are neither theoretically nor empirically solved. We hope to make a contribution in order to solve some of these puzzles. How can start-up companies handle thess problems? It can be expected, that the requirements for a well-functioning equity-based incentive system will be reduced by (1) including a greater number of employees as participants and, at the same time, by (2) reducing the variable part of their income. This leads to our conclusion, that the material incentive system will, on the one hand, only have a minimal effect on the extrinsic motivation, but, on the other hand, the intrinsic motivation will not be endangered by such a construction, instead, it might also increase. In our paper we show how do the equity-based incentive systems at the “Neuen Markt” look like. Besides this, we highlight some introduced means in order to prevent the substitution of intrinsic by extrinsic motivation.

CONTACT: Lars Schweizer, University of Bamberg, Feldkirchenstr. 21, 96045 Bamberg, Germany; (T) +49 951 863 2656; Lars.Schweizer@sowi.uni-bamberg.de