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Employee stock purchase plans: gift or incentive? Evidence from a multinational corporation

Bryson, Alex and Freeman, Richard (2014) Employee stock purchase plans: gift or incentive? Evidence from a multinational corporation. NIESR Discussion Paper (439). National Institute of Economic and Social Research, London, UK.

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Abstract

Many large listed firms offer workers the opportunity to buy shares in the firm at discounted rates through employee stock purchase plans (ESPP). The discounted rate creates a gift exchange, where the firm hopes that workers who accept the gift reciprocate with greater loyalty and effort. But ESPPs diverge from standard gift exchange or efficiency wage models. Employees have to invest some of their own money by purchasing shares at the discounted rate to accept the gift. A sizeable number choose to reject the gift. In addition, the value of the ESPP gift varies with the share price and thus with the performance of the firm and the effort of workers in total. For workers who buy subsidized shares, an ESPP sets up a group incentive pay system analogous to profit sharing, all-employee stock options, or an employment ownership scheme that makes part of workers' compensation depend on company performance. Using data from the UK establishments of a multinational firm that places its ESPP at the heart of its employee compensation system, we compare the workplace behaviour of employees who join the ESPP with that of observationally equivalent workers who do not join the plan. We find that workers who purchase shares at subsidized prices work harder for longer hours and have lower quit and absence rates than workers who do not join the plan, but are no more involved in co-monitoring the performance of fellow employees than non-Plan members. We also find perceptions of peers' Plan participation influences workers' behaviour. ESPP joiners socialise more with colleagues outside work: this greater sense of social identity with colleagues, predicted under some gift exchange models, lowers their costs of work effort and may explain why they are more productive than those who do not join the ESPP. These findings highlight the distinct place of subsidized share purchase schemes in the spectrum of gift exchange and group incentive pay systems.

Item Type: Monograph (Discussion Paper)
Official URL: http://niesr.ac.uk/
Additional Information: © 2014 The Authors, NIESR
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
JEL classification: J - Labor and Demographic Economics > J2 - Time Allocation, Work Behavior, and Employment Determination and Creation; Human Capital; Retirement > J24 - Human Capital; Skills; Occupational Choice; Labor Productivity
J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J33 - Compensation Packages; Payment Methods
J - Labor and Demographic Economics > J5 - Labor-Management Relations, Trade Unions, and Collective Bargaining > J54 - Producer Cooperatives; Labor Managed Firms
J - Labor and Demographic Economics > J6 - Mobility, Unemployment, and Vacancies > J63 - Turnover; Vacancies; Layoffs
M - Business Administration and Business Economics; Marketing; Accounting > M5 - Personnel Economics > M52 - Compensation and Compensation Methods and Their Effects (stock options, fringe benefits, incentives, family support programs, seniority issues)
Sets: Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 12 Dec 2014 11:33
Last Modified: 14 Feb 2018 14:50
Funders: British Academy Research Development Award (grant number BR100020), Norwegian Research Council (grant number 202647)
URI: http://eprints.lse.ac.uk/id/eprint/60493

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