Systematic differences in employee stock ownership plan contributions: some evidence

Abstract

Under current federal law, ESOPs are intended to provide an employee benefit and also meet corporate financial objectives. These dual purposes may not always be compatible. This study examines total retirement plan contributions, using data from Department of Labor Form 5500s, and demonstrates systematic differences in those contributions between companies establishing the ESOP for different reasons. A significant increase in benefits after the ESOP is implemented is found in those firms using the ESOP primarily as an employee benefit with no apparent finance objectives, while a significant decrease in benefits is found in those firms using the ESOP primarily for corporate finance reasons. The difference in benefits suggests that the reason an ESOP is adopted may make a difference to the employees of the firm. Further analysis links total retirement contributions to a measure of firm productivity. ESOPs with positive increases in total retirement benefits are associated with increases in sales per employee.