Broad-based Employee Stock Ownership: Motives and Outcomes

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

See all articles by E. Han Kim

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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