Valuing restricted stock grants to non-executive employees

• The paper estimates the value of restricted stock grants to non-executive employees.
• The estimation calibrates models that account for non-marketability of securities.
• The discount depends on firm characteristics and increases during financial distress.
• The discount increases when the employee is un-diversified.

We estimate the value of restricted stock (RS) grants to non-executive employees using a unique proprietary database by calibrating theoretical models that account for the non-marketability of securities and the potential effects of the employee's non-diversification. The calibration results predict an average discount of 30.3% on the RS grant. This discount depends on firm and industry characteristics, is significantly higher during the financial crisis and robust across time and across industries. The discount increases when the employee is undiversified because of the granted stocks. The findings contribute to the discussion on the efficiency of RS grants to non-executive employees, which became a dominant form of equity-based compensation.