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Market-Based Solutions to Vital Economic Issues
Research
May 8, 2014

Broad-Based Employee Stock Ownership: Motives and Outcomes

Abstract

Firms initiating broad-based employee share ownership plans often claim employee stock ownership plans (ESOPs) increase productivity by improving employee incentives. Do they? Small ESOPs comprising less than 5% of shares, granted by firms with moderate employee size, increase the economic pie, benefiting both employees and shareholders. If a firm has too many employees, free-riding is mitigated which can weaken the effect of  these ownership plans. Although some large ESOPs increase productivity and employee compensation, the average impacts are small because they are often implemented for nonincentive purposes such as conserving cash by substituting wages with employee shares or forming a worker-management alliance to thwart takeover bids.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals


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