Broad-based Employee Stock Ownership: Motives and Outcomes
73 Pages Posted: 26 Apr 2011 Last revised: 10 Jul 2013
Date Written: June 10, 2013
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: Suggested Citation