We investigate firms’ operating performance subsequent to the repricing of executive and non-executive employee stock options. We find that, relative to non-repricers, repricing firms have a larger increase in operating income and cash flows in subsequent periods. This performance improvement is attributable to the underlying economic determinants of the decision to restore the options’ incentive properties. However, only repricings of executive stock options are associated with improvement in performance; we find no such evidence for non-executive employees. Our findings suggest employee stock options provide sufficiently large incentive effects to favorably affect firms’ performance, but primarily so at the executive level.