The Role of Employee Stock Purchase Plans — Gift and Incentive? Evidence from a Multinational Corporation
| Author | Alex Bryson,Richard B. Freeman |
| Date | 01 March 2019 |
| Published date | 01 March 2019 |
| DOI | http://doi.org/10.1111/bjir.12420 |
British Journal of Industrial Relations doi: 10.1111/bjir.12420
57:1 March 2019 0007–1080 pp. 86–106
The Role of Employee Stock Purchase
Plans — Gift and Incentive? Evidence
from a Multinational Corporation
Alex Bryson and Richard B. Freeman
Abstract
Employee share purchase plans (ESPPs) give free or discounted shares of stock
to workers who buy shares in the hope that the greater share ownership will
retain workers, build loyalty and raise productivity, as in gift exchange models.
Using measures of workers’ organizational loyalty and sense of ownership in a
multinational firm that puts the ESPP at the heart of its compensation policy,we
find that workers who join the ESPP have lower turnover intentions and do less
on-the-job search than others, motivated in part bygift exchange reciprocity, and
also respond to the group incentive of ownership with greater work eort, longer
hours, and lower absence rates. Workers in workplaces with high perceived rates
of ESPP participation are more likely to intervene against shirkers. The results
appear robust to the selectivity of who joins the ESPP. The mix of gifting shares
to workers who buy shares and the group incentive of ownership makes ESPPs
a unique dual form of compensation.
1. Introduction
Many listed firms have employee share purchase plans (ESPPs) that oer
free shares to workers who purchase and hold shares for a specified period.
From the perspective of gift exchange models (Akerlof 1982, 1984; Stiglitz
2002), the matching share is a gift designed to elicit reciprocal eort from the
employee. It pays o for the firm via greater eort and productivity.From the
perspective of group incentive pay, workers who hold shares have a monetary
incentive to work better irrespective of reciprocation. Both gift exchange and
group incentive modes of pay are economically viable if the firm and workers
overcome the free-rider problem and raise firm productivity, as is found in
most studies of group incentives.1
Alex Bryson is at UCL, NIESR and IZA. Richard B.Freeman is at Harvard, NBER and CEP.
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2018 John Wiley & Sons Ltd.
The Role of Employee Stock Purchase Plans 87
This article examines the dual role of gift exchange reciprocity and
group incentive pay responses to an ESPP using evidence from ShareCo
(a pseudonym), a multinational firm that places its ESPP at the heart of
its compensation system. We find that employees who purchase shares at
subsidized prices work harder, for longer hours,and have lower quit intentions
and absence ratesthan observationally equivalent workerswho do not join the
plan. Using responses to questions about the attitudesand sentiments through
which a gift exchange presumptively works, we find that the loyalty and co-
ownership associated with the gift exchange contribute to the lower turnover
intentions and lower job search of workers who join the ESPP, and that ESPP
members press co-workers to work hard in workplaces with high membership
rates. Taking account of the gift exchange, ESPP members also work harder
and longer in response to the group incentives induced by shared ownership.
The article analyses the dual role of an ESPP as gift exchange and
group incentive system and the features of ShareCo’s ESPP that make it a
representativecase for analysis. Weuse questions about workerattitudes to the
firm and work behaviourto dierentiate the gift exchange and incentive eects
of ShareCo’s ESPP on work outcomes; and use a large array of measures of
individual characteristics and dummy variables for workplace unit to match
ESPP members with observationally equivalentnon-members in our analysis.
We conclude with a summary of findings and the questions they raise for
further research.
2. The dual attributes of an ESPP
Table 1 highlights what dierentiates an ESPP from other forms of
compensation. First, an ESPP is a contingent policy that workers must accept
and invest some of their own money to be covered. The requirement that
workers put up some of their own money presumably acts as a commitment
device in the gift exchange (Bryan et al. 2010). That workers agree to
this contract dierentiates it from standard group incentive pay, which
management chooses for the work force. In an ESPP, the worker who rejects
the plan remains a fixed wage employee at the firm. In standard group
incentive schemes, the worker who prefers a fixed wage must find another
employer.
Giving workers the choice of participating in a group incentive scheme
creates a dual labour market in a firm. Workers who join the ESPP tie part
of their income to the stock market valuation of the firm, and accept the
psychological reciprocity relation that governs gift exchanges. Workers who
reject the gift are paid fixed wages with no extra financial incentive to work
hard or to remain with the firm. The existence of two groups of workers paid
dierently in the same firm/workplace allows us to compare the attributes
and behaviour of workers with dierent preferences for mode of pay in the
same economic situation. Since the firm oers the same contract to all workers
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2018 John Wiley& Sons Ltd.
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