ESOPs and Corporate Performance

The last 15 years has seen the emergence of a growing body of empirical literature that has sought to find a link between employee shareholding and measures of (essentially short term) corporate performance This literature, in general, falls into two groups. Economists, providing the vast majority of the studies that have examined the impact of employee share ownership on accounting profitability and productivity, to a lesser extent its effect on employment creation and sales growth, and at the more micro level its impact on labour turnover, absenteeism, technical progressiveness, and organisational flexibility. Organisation theorists and psychologists, on the other hand, have tended to explore indicators of the less tangible (psychic) benefits such as job satisfaction and the quality of working life. Central to most studies, however, is the crucial intervening role thought to be played by other forms of employee participation, and the interactions with employee shareholding schemes. Thus, the need to take into consideration the effects of other possible forms of employee participation already practised by the company or implemented in conjunction with the adoption of an ESOP is paramount. For instance, the inclusion of employee influence in enterprise decision making, its various formal and/or informal channels, and information on the actual extent of employee ownership in individual firms are seen as important controls in determining the overall capacity of ESOPs to influence corporate performance.