Broad-based Employee Stock Ownership: Motives and Outcomes

73 Pages Posted: 26 Apr 2011 Last revised: 10 Jul 2013

E. Han Kim

University of Michigan, Stephen M. Ross School of Business

Paige Ouimet

University of North Carolina at Chapel Hill

Date Written: June 10, 2013

Abstract

Firms initiating broad-based employee share ownership plans often claim ESOPs increase productivity by improving employee incentives. Do they? The answer depends. Small ESOPs comprising less than 5% of shares, granted by firms with moderate employee size, increase the economic pie, benefitting both employees and shareholders. The effects are much weaker when there are too many employees to mitigate free-riding. Although some large ESOPs increase productivity and employee compensation, the average impacts are small, because they are often implemented for non-incentive purposes, such as conserving cash by substituting wages with employee shares or forming a worker-management alliance to thwart takeover bids.

Keywords: ESOPs, Group Incentives, Worker Mobility, Worker-Management Alliance, Cash-Constrained Firms

JEL Classification: G32, M52, J54, J33

Suggested Citation

Kim, E. Han and Ouimet, Paige, Broad-based Employee Stock Ownership: Motives and Outcomes (June 10, 2013). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1823745 or http://dx.doi.org/10.2139/ssrn.1823745

E. Han Kim

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-764-2282 (Phone)
734-763-3117 (Fax)

Paige Ouimet (Contact Author)

University of North Carolina at Chapel Hill ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

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