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
Date Written: March 15, 2021
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: Suggested Citation