The Hidden Cost of Profit Sharing on Participation in Employee Stock Purchase Plans

cege Discussion Paper, No. 414, March 2021

28 Pages Posted: 3 Apr 2021

See all articles by Jan Hennig

Jan Hennig

University of Göttingen

Rieke Hullmann

affiliation not provided to SSRN

Holger Andreas Rau

University of Goettingen (Göttingen)

Michael Wolff

University of Göttingen

Date Written: March 15, 2021

Abstract

Many firms use equity-based profit sharing to boost participation in employee stock purchase plans (ESPPs). Using a large panel data set (N=262,824) of a multinational firm, we compare the reactions of former ESPP participants and non-participants to a profit sharing distribution (PSD). We find a dysfunctional effect. Although many former non-participants sign in, almost a similar share of employees leave the ESPP after the PSD. A closer look highlights the importance of social preferences when all employees enjoy profit sharing. Prosocial former participants show a motivational crowding out effect and leave the program, as the equity norm is violated.

Keywords: Employee Stock Purchase Plans, Gift Exchange, Motivational Crowding Out, Norm Violation

JEL Classification: D03, J24, J33, J54, M52

Suggested Citation

Hennig, Jan and Hullmann, Rieke and Rau, Holger Andreas and Wolff, Michael, The Hidden Cost of Profit Sharing on Participation in Employee Stock Purchase Plans (March 15, 2021). cege Discussion Paper, No. 414, March 2021, Available at SSRN: https://ssrn.com/abstract=3805029 or http://dx.doi.org/10.2139/ssrn.3805029

Jan Hennig

University of Göttingen ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

Rieke Hullmann

affiliation not provided to SSRN

Holger Andreas Rau (Contact Author)

University of Goettingen (Göttingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

Michael Wolff

University of Göttingen ( email )

Platz der Göttinger Sieben 3
Göttingen, DE 37073
Germany

HOME PAGE: http://www.contolling.uni-goettingen.de

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