Decisions to enrol in employee stock ownership plans: When experiences become a habit

Management commitment to innovation and esop stock concentration

This paper provides novel evidence on the effects of employee stock ownership (ESO), using new panel data on Japanese ESO plans for a highly representative sample of publicly-traded firms in Japan (covering more than 75% of all firms listed on Tokyo Stock Exchange) over 1989-2013. Unlike most prior studies, we focus on the effects of changes in varying attributes of existing ESO—the effects on the intensive margin. Our fixed effect estimates show that an increase in the strength of the existing ESO plans measured by stake per employee results in statistically significant productivity gains. Furthermore, such productivity gains are found to lead to profitability gains since wage gains from ESO plans are statistically significant yet rather modest. Our analysis of Tobin's Q suggests that the market tends to view such gains from ESO plans as permanent. We further find that increasing the stake of the existing core participants is more effective in boosting gains from ESO plans than bringing in more employees into the trust. Reassuringly, our key results are found to be robust to the use of instrumental variables to account for possible endogeneity of ESO plans. Finally, we explore possible interplays between ESO plans and firm characteristics such as ownership structure and firm size/age. First, the positive effects on productivity, profitability, wages and Tobin's Q are found to become larger as the proportion of powerful institutional investors and foreign investors rises, implying that the growing importance of such powerful outside shareholders may be reducing the adverse managerial entrenchment effect of ESO plans. Second, productivity gains from ESO plans are found to be more limited for smaller and younger firms. We interpret the finding as evidence in favor of the institutional complementarity view that ESO plans are an integral part of the Japanese High Performance Work System (HPWS)—a complementary cluster of human resource management practices which are more pervasive among larger and older firms in Japan.

September, 1980 edition of Journal of Risk and Insurance includes an article by D. T. Livingston and James B. Henry entitled The Effect of Employee Stock Ownership Plans on Corporate Profits. article is exceptionally poor scholarship. It states a sweeping conclusion about Employee Stock Ownership Plans (ESOPs) without the benefit of having studied plans that are true ESOPs and without the benefit of examining critically important distinctions among the wide variety of plans that are legitimately called ESOPs. Moreover, even if the article had been examining true ESOPs and the necessary distinctions therein, the data presented in no way justify the conclusion that ESOPs have a negative effect on corporate profitability. 1. authors were apparently not studying ESOPs. technical appendix states that the plans studied were employee stock plans established before 1966. There is an enormous difference between an employee stock purchase plan and an ESOP, which is an employee stock ownership plan. Stock plans require employees to put up their own money to buy the stock, and typically own a very small percentage of their sponsoring company. ESOPs rarely involve employee contributions, in order to avoid securities registration problems, and frequently own all or at least a very major portion of their sponsoring company. It is an egregious error to confuse the two. Moreover, the dates of inception of the plans provide another clue that they are not really ESOPs. There were only a handful of ESOPs established before the concept became popularized in 1975, but all of the plans studied in the article were established at least nine years before that time. To criticize ESOPs when one has not studied ESOPs is utterly irresponsible. 2. article makes no attempt to distinguish among different types of employee ownership plans, despite the tremendous differences that exist between different categories of ESOP. Common sense indicates that the percentage of the company owned by its employees ought to have something to do with the ESOP's effect on productivity and profitability. That notion was borne out by the Conte & Tannenbaum study for the University of Michigan's Survey Research Center indi-

In this chapter, the authors argue that far from the shocking decision of firing employees to leverage their short-term liquidity, organizations may draw other innovative options such as giving company shares to their employees. Employee stock ownership (ESO) plans have the potential to secure financial liquidity for firms while simultaneously providing social inclusion as well as empowerment to people, relating their efforts directly to firms' performance and driving the economic system into a shared capitalism. However, while companies may be solving their financial constraints through ESO, the authors identified a trade-off related to the traditional position of hegemony of firms. They argue that the decision to share the risk through paying wages using firms' stock options derives in a progressive detriment of power and control that some organizations would not be willing to suffer.

Employee Stock Ownership Plans (ESOP) recently have become popular as employee benefit plans. Arguments presented in their favor include increased productivity, lower employee turnover, and reduced costs of raising equity capital. Little empirical evidence has documented these purported benefits. Profits of similar firms with and without ESOPs are compared to identify differences which confirm or refute these claims. A univariate matched pair analysis and a multivariate multiple discriminate analysis provide results indicating firms with ESOPs have significantly lower profits than firms without ESOPs. Additional analyses indicate no difference in risk characteristics which might explain differences in profitability, and imply that costs of the plans outweigh financial benefit to the firm. According to a recent survey conducted by Bankers Trust, the number of firms with employee stock purchase plans has nearly doubled in recent years. In 1967 the survey indicated 128 corporations with stock purchase plans, while the 1977 survey listed 236 corporations with such plans [2]. Large firms like Sears and IBM are well known for their programs, but many small firms also have utilized these plans. Recent development has been in the establishment of tax-qualified plans called Employee Stock Ownership Plans (ESOPs). An ESOP is defined as any tax-qualified, individual-account, deferredcompensation plan which invests a significant portion of its funds in employer stock. The plan may be a profit-sharing, stock-bonus, money-purchase pension plan, or some combination of the three. Employers contribute either cash or company stock into a trust and receive a tax deduction equal to the market value of the payment [9]. Louis Kelso, lawyer and lay-economist, has been most responsible for promoting these plans during the past 20 years [14, 15, 16]. He convinced Senator Russell B. Long to support the idea, and special benefits for ESOPs became part of the Employee Retirement Income Security Act of 1974 (ERISA) and the Long Amendment to the Tax Reduction Act of 1975. These laws allow tax breaks which make the establishment of ESOPs attractive to business organizations.

Enterprises in the context of smart manufacturing face great challenges in terms of human capital strategies as well as incentive mechanisms. Employee Stock Ownership Plans (ESOPs) is one of the key incentive mechanisms with long-term oriented function, but due to the lack of relevant explanations in the context of smart manufacturing, the mechanism of the dynamic impact of ESOPs on corporate performance has not yet been elucidated. In this study, with the idea of combining AI and accounting, we constructed a prediction model of the impact of ESOPs on enterprise performance that integrates language modeling and social sentiment mass data analysis, and introduced the prediction model to analyze the long-term, dynamic and nonlinear impact of ESOPs on enterprises; finally, we constructed an explainable AI (XAI) based on the LSTM model, and used the SHAP value method to explain the impact of ESOPs on enterprise performance. Finally, the Explainable AI (XAI) is built based on the LSTM model, and the SHAP value method is used to downsize the performance of the complex black box model LSTM, present the model “black box”, and analyze the common roles played by the elements of ESOPs, the maturity level of smart manufacturing, and the social sentiment on ESOPs in the long term and nonlinear process. Aiming at the above research problems and shortcomings, the main contributions of this paper include: analyzing the dynamic evolution path of ESOP effectiveness from the perspective of intelligent transformation of manufacturing enterprises; predicting the ESOP effectiveness of enterprises through multi-source heterogeneous data (financial data, social sentiment data, operation data) and advanced AI models (LSTM, LLM), and proposing new prediction tools and prediction theories; using XAI technology to realize ESOP effectiveness; and using XAI technology to realize ESOP effectiveness in the long term and non-linear process. Theory; the use of XAI technology to achieve ESOP incentive effect attribution analysis, for management accounting decision support to provide a new dimension of interpretation, which can be used as a research on ESOP dynamic incentive evaluation, integration of non-financial information, predictive analysis of new perspectives for the field of accounting to develop a new research direction, and for the transformation of intelligent manufacturing design and optimization of ESOP to provide empirical data basis and decision support. The study also provides empirical data basis and decision support for the design and optimization of ESOPs during the transformation of smart manufacturing.

Purpose American workers at nearly every level of the income spectrum are not and often cannot to save properly to be secure in retirement. Addressing this challenge will require a comprehensive policy discussion by both federal and state policymakers. Employee stock ownership plans (ESOPs) are the primary form of employee ownership, and for reasons explored in this report, companies organized as S corporations are especially likely to be fully ESOP-owned. The purpose of the paper is to explore the role played by employee ownership in retirement security overall and across wage and age groups. Design/methodology/approach The findings described in this report are derived from a survey of privately held S corporation ESOPs. The report compares these findings to nationally representative survey data. The online survey, conducted between January and March 2018, received responses from 39 companies that supplied the median and average account balances of a total of 61,020 plan participants. It breaks new ground by presenting retirement account balances by wage and age categories (e.g. 20,000 lower-wage workers and 8,000 employees nearing retirement). Findings ESOP participants represented in this survey have more than twice the average total retirement balance of Americans nationally: $170,326 vs $80,339. This is not just a function of higher wage ESOP employees driving the average up. ESOP employees making less than $25,000 a year also have on average more than double the retirement savings ($55,526) compared to similar workers nationally ($22,447). Nearly all of the respondent companies (97 percent) offer at least one other retirement plan in addition to the ESOP. By contrast, 32 percent of all workers in the US workforce as a whole do not have access to any retirement benefits at work, and 49 percent of all workers are not participating in the plan that is available to them. Additionally, these S corporation ESOP companies provide an array of benefits at levels solidly higher than firms overall where comparison data exist. Certainly, these benefits make their own contribution to retirement security because workers are less likely to have to dip into savings for critical investments or expenses, such as tuition, to advance their career or unexpected medical expenses. Among the surveyed S ESOPs, workers nearing retirement have on average a median account balance of $147,522 in their ESOP plus $98,974 in a non-ESOP plan(s). By contrast, more than one-third (35 percent) of all workers nearing retirement have neither retirement savings nor a defined benefit pension. This percentage rises to 50 percent among low-income workers in this age bracket. As such, national data place the median account balance of all US workers aged 55–64 years at zero. Even among workers who have retirement accounts, the median balance nationally is $100,000. A typical millennial worker (25–34 years old) at a surveyed S ESOP company has a median ESOP account balance of $22,588 and a median balance of $11,239 in a non-ESOP account. In contrast, the median savings of US millennials is zero. Among the surveyed S ESOPs, lower-wage employees ($10.00–$12.85 per hour) typically have median account balances in their ESOP of $4,381 and in a non- ESOP plan of $2,149. In contrast, nationally, 56 percent of workers in this category do not have access to any retirement benefits at work. This translates into a median savings for this group of zero. Finally, ESOPs are clearly associated with reduced turnover. Respondent companies report quit and separation rates that are more than two times lower than national rates. Originality/value This is the first such study of its kind.

In this study, we examined the correlates of individual employee satisfaction with stock ownership in a sample of 37 employee stock ownership plan (ESOP) companies. The results indicated that ESOP satisfaction is a function of five factors: (a) characteristics of the company ESOP, (b) employee status within the ESOP, (c) employee values, (d) interactions between employee and ESOP characteristics, and (e) employees' general attitude toward the organization as a whole (organizational commitment). Together, these five factors accounted for 58% of the variance in ESOP satisfaction. The results both support and extend previous employee stock ownership research and theory. Despite increasing research attention (e.g., Conte & Tannenbaurn, 1978; French & Rosenstein, 1984; Hammer & Stern, 1980; Hochner & Granrose, 1985; Klein, 1987; Long, 1978; Rosen, Klein, & Young, 1986), important questions about the nature and determinants of employee attitudes toward stock ownership remain unanswered. Are all employees equally satisfied with stock ownership? If not, which factors distinguish the more satisfied from the less satisfied employees? How much do company-level factors explain differences in employee satisfaction with stock ownership? Are more highly paid employees more satisfied with stock ownership than lower paid employees? Are more educated employees more satisfied with ownership than less educated employees? To answer these questions, we proposed and tested a model of individual employee satisfaction with stock ownership. Before describing this model, we provide a brief introduction to employee stock ownership plans (ESOPs).

Employee Stock Ownership Plan (ESOP) is a company program to provide incentives to managers to increase shareholder wealth and to align interests between the shareholders and the management. This ESOP is one of the most effective efforts to reduce conflicts of interest between the owners and the managers. ESOP program is basically intended to provide motivation and incentives for employees, so that employees will have a sense of concern (sense of belonging) to the company. Productivity is a reflection of the level of efficiency and effectiveness of work in total in a company. Productivity becomes very important, because it can describe the performance of a company. Performance is defined as the size or level at which individuals and organizations can achieve goals effectively and efficiently. This study aims to examine the effect of ESOP variables on company performance by using productivity as a mediating variable in non-financial companies in Indonesia Stock Exchange. The sample used in this research is companies that implement ESOP in the period 2000–2015. In this study, the company’s performance is measured by using return on assets, return on equity and Tobin’s Q, while productivity is measured by using sales per employee, cash flow per employee, and total assets turnover. Based on the results, it can be concluded that Employee Stock Ownership Program (ESOP) has a positive and significant impact on productivity.

Samuel Zell's acquisition of the Chicago Tribune Company (the Tribune) in December 2007 using a little-known type of Employee Stock Ownership Plan (ESOP) made headlines. In a complicated transaction, which took nearly a year to complete, the Tribune converted from a subchapter C corporation to a subchapter S corporation, established an ESOP that purchased 100 percent of the company's equity, and sold Zell a call option giving him the right to purchase 40 percent of the company's equity. Press reports claim that Zell's novel structure enabled Zell to outbid other suitors. And financial commentators predict that many acquirers will employ that same structure as soon as acquisition activity picks up. Zell's Tribune transaction also caught the eye of legislators, including Congressman Charles Rangel, who introduced a bill that would increase the tax on indirect claims - such as the one owned by Zell - on the equity of an S corporation held by an ESOP (synthetic equity).Although ESOPs are more than 30 years old, until 1998, an S corporation could not sponsor an ESOP. Over the last ten years, so-called S ESOPs have grown rapidly, but largely outside of public view. The Tribune transaction has focused a bright light on S ESOPs and there are some who believe that their current tax treatment is too favorable. Yet, there has been little in-depth analysis of the tax treatment of S ESOPs. Accordingly, this paper attempts to fill that gap by presenting a systematic economic evaluation of the tax consequences of using an S ESOP. It seeks to describe both qualitatively and quantitatively the tax advantages and disadvantages of using an S ESOP (with or without synthetic equity) relative to alternative available structures. This paper also estimates by how much the S ESOP structure likely allowed Zell to increase his bid for the Tribune.

The leveraged Employee Stock Ownership Plan (ESOP) structure was created by US Congress to enable American workers to gain an equity interest in their companies without using their own funds. A critical component in the financing of leveraged ESOP transactions is a “warrant,” which enables corporate sponsors of ESOPs to access the financing necessary to facilitate purchases of company stock by ESOPs. Warrants also afford substantial benefits to ESOPs by providing downside risk for ESOP participants, freeing up cash for more productive uses than servicing interest on debt and aligning all corporate stakeholders' interests toward the common goal of increasing equity value. Recently, however, the US Department of Labor (DOL) has taken the position that warrants necessarily reduce the fair market value of a subject company's equity in an ESOP transaction. This position, which would discourage ESOP formation, is contrary to both the “fair market value” standard that governs ESOP transactions and the DOL's long-held position on this issue. By helping to clear misconceptions around the use of warrants in leveraged ESOP transactions, we hope to contribute to the continued proliferation of ESOP ownership, resulting in a broader-based participation in wealth creation among American workers.

Purpose Close to half of all privately held companies in the USA are owned by baby boomers, meaning 2.7m American businesses are owned by someone age 55 or older. In the coming decades, all of these businesses will either change owners or disappear. The median state has 34,000 businesses approaching an ownership transition. The effects of this generational shift will be felt in cities, small towns and rural areas. At the same time, state governments are struggling with the challenge of preserving jobs and stimulating local economies buffeted by larger economic trends. States currently spend an estimated $45bn to $70bn a year on efforts to attract and retain jobs. If even a fraction of these exiting owners pursued an Employee Stock Ownership Plan (ESOP) as their business exit strategy, the potential positive impact on workers, communities and state economies would be substantial. Yet, many business owners are not even aware of ESOPs as an option. In light of this knowledge gap, many of these businesses will instead shut down or sell to outside investors who may not be interested in preserving and growing local jobs. This paper aims to discuss these issues. Design/methodology/approach Review of state information and statistics on employee ownership. Findings Currently, there are around 6,660 ESOPs in the USA holding total assets of nearly $1.4 trillion. These plans cover 14.2m participants. The Midwest is home to the greatest number of ESOPs, followed by the South. There is a least one ESOP headquartered in 4,131 distinct zip codes. Practical implications In order to increase the effectiveness and penetration of local outreach and education, states can: create an office of employee ownership with a dedicated staff person. The office could exist within a state agency or as a nonprofit receiving state funding; provide grants to one or more nonprofits to run an outreach program; hold seminars statewide in conjunction with professional, business, and trade publications and organizations; publish and disseminate brochures and other material; and work with the media to encourage stories on local ESOP companies. In order to promote ESOPs as an attractive alternative to private equity, outside competitors, and other potential purchasers of the business, ESOP outreach should: focus on business owners who are approaching retirement or a liquidity event, as opposed to start-ups or businesses who are interested in progressive management. Focus on the human side and emotional impact of employee ownership. Videos and other personal testimonials contrasting the storylines of a company that becomes employee-owned vs one that becomes owned by an outside investor can be powerful. Take advantage of the ESOP community by facilitating peer-to-peer connections, where company leaders talk with their peers who have sold to an ESOP. These connections are usually fostered based on location or industry. Take care to ensure that the center is seen as providing objective information as opposed to being perceived as trying to “sell” owners on the idea. Originality/value This is the first published review of ESOPs in the states.

An Employee Stock Ownership Plan (ESOP) is a strategic welfare extended to the employees in a company in the form of sharing the profits and progress of a company. The managerial personnel who have decided to go for ESOP strategy have to decide about the centre for power of control in day-to-day business operations. Thus, corporate decision making is made crucial when ESOP is decided to be followed to strengthen the ownership of an enterprise. The main challenge in issuing ESOP is the dilution in the management. This chapter deals with the corporate social responsibility, corporate governance and tax implications associated with ESOP.

This study investigates the effect of employee stock ownership on a company's cost of capital. It takes employees into great consideration and tries to overcome the agency conflict that exists within the company by adopting the employee's stock ownership plan. The panel data regression is run in order to find out the effect of employee stock ownership on a company’s cost of capital. This study hypothesizes that employee stock ownership will tend to reduce the company's cost of capital, due to a decrease in the cost of equity and debt cost of the corporations. From KSE 100 companies were chosen for our research analysis, the study employs a sample size of 209 companies. 11 years of data were collected (2010-2020), a panel data regression was run due to cross sectional and time-series data. The research showed that there is a substantial impact of employees’ stock ownership on the company's cost of capital, equity cost, and company's debt cost, and a negative relationship exists between the independent and dependent variables. Employee stock ownership increases the company's cost of debt, equity cost and capital cost decreases. The research involves employee stock ownership as the variable because there are few research works yet been conducted especially in Pakistan. It also contributes towards the bond found between ESO and agency cost that how it helps to minimize the cost and benefits to the company and shareholders. This study offers a contribution towards the literature concerning ESO and the company’s capital cost. It is useful for the companies, as this shows that adopting the employee's stock ownership plan reduces the company’s capital cost, cost of debt, and equity as a whole, and most importantly the principal-agent conflict is minimized. The financial companies are fully ignored which may represent different results and may vary according to the sectors as well. The given effect can also be checked by taking stock prices as the dependent variable.

ABSTRACTResearch IssueWe investigate the deliberations of controlling shareholders in assessing the trade‐offs between costs and benefits preceding the adoption of an Employee Stock Ownership Plan (ESOP). Furthermore, we explore the market responses to ESOP announcements and their associations with the private benefits of control. Moreover, our study delves into the modifications in private benefits of control, changes in employment dynamics, and subsequent operating performance subsequent to the implementation of ESOPs.Research InsightsWe conduct our research employing a comprehensive dataset encompassing the adoptions of ESOPs within publicly listed Chinese companies during the period spanning from 2014 to 2020. Our empirical findings reveal that firms characterized by diminished private benefits of control, as indicated by a reduced wedge between control rights and cash flow rights, as well as a lower frequency of related party transactions, are more inclined to consider the adoption of ESOPs, especially when the potential for productivity gains is substantial. These firms also elicit more positive market reactions upon the announcement of their ESOP initiatives. While ESOPs do lead to heightened productivity, the overall enhancement in operating performance remains relatively modest due to the significant cost burden imposed on shareholders by the large unearned employee compensation. Our results suggest that controlling shareholders who partake in fewer private benefits of control are more inclined to forego these entitlements in favor of embracing ESOPs as a strategic mechanism for realizing productivity gains. However, it is imperative to acknowledge that such gains may be considerably offset by substantial increases in employee compensation expenses. Despite the prevalence of short‐lived features in Chinese practice, we lack substantial evidence supporting their inhibitory effects on the increased monitoring and productivity following ESOP adoption.Academic ImplicationsThis study provides a comprehensive examination of recent ESOPs in the Chinese context, offering insights into the regulatory complexities within the largest emerging market. The research contributes to the existing literature by unveiling the intricate relationship between private benefits of control and the decision to adopt ESOPs, as well as their subsequent implications. Notably, our findings, particularly the observed neutral impact on operating performance, augment the ongoing discourse surrounding the efficacy of ESOPs in augmenting shareholder value.Policy ImplicationsThis research introduces ESOPs as an innovative mechanism for mitigating private benefits of control, particularly in the context of emerging markets where controlling shareholders tend to accrue significant private benefits of control. The incorporation of performance‐related criteria within the ESOP framework serves as a means to effectively manage the additional compensation associated with these plans, thereby enhancing their overall efficacy.