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Employee Stock Purchase Plans

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  • Gary V. Engelhardt
  • Brigitte C. Madrian

Abstract

Employee stock purchase plans (ESPPs) are designed to promote employee stock ownership broadly within the firm and provide another tax-deferred vehicle for individual capital accumulation in addition to traditional pensions, 401(k)s, and stock options. We outline the individual and corporate tax treatment of ESPPs and the circumstances under which ESPPs will be preferred to cash compensation from a purely tax perspective. We then examine empirically ESPP participation using administrative data from 1997-2001 for a large health services company that employs approximately 30,000 people. The picture that emerges from the analysis of these data suggests that there is substantial non-participation in these plans even though all employees could increase gross compensation through participation. We discuss a number of potential explanations for non-participation.

Suggested Citation

  • Gary V. Engelhardt & Brigitte C. Madrian, 2004. "Employee Stock Purchase Plans," NBER Working Papers 10421, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:10421
    Note: AG CF LS PE
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    References listed on IDEAS

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    Cited by:

    1. Ilona Babenko & Rik Sen, 2016. "Do Nonexecutive Employees Have Valuable Information? Evidence from Employee Stock Purchase Plans," Management Science, INFORMS, vol. 62(7), pages 1878-1898, July.
    2. Thomas Rapp & Nicolas Aubert, 2011. "Bank Employee Incentives and Stock Purchase Plans Participation," Journal of Financial Services Research, Springer;Western Finance Association, vol. 40(3), pages 185-203, December.
    3. Nicolas Aubert & Niaz Kammoun & Yacine Bekrar, 2018. "Financial decisions of the financially literate," Finance, Presses universitaires de Grenoble, vol. 39(2), pages 43-91.
    4. Alex Bryson & Richard B. Freeman, 2019. "The Role of Employee Stock Purchase Plans — Gift and Incentive? Evidence from a Multinational Corporation," British Journal of Industrial Relations, London School of Economics, vol. 57(1), pages 86-106, March.
    5. Nicolas Aubert & Xavier Hollandts, 2015. "How Shared Capitalism Affects Employee Withdrawal: An Econometric Case Study Of A French-Listed Company," Post-Print halshs-01256759, HAL.
    6. Hennig, Jan Christoph & Hullmann, Rieke & Rau, Holger A. & Wolff, Michael, 2021. "The hidden cost of profit sharing on participation in employee stock purchase plans," University of Göttingen Working Papers in Economics 414, University of Goettingen, Department of Economics.
    7. Alex Bryson & Richard B. Freeman, 2010. "To join or not to join? Factors influencing employee share plan membership in a multinational corporation," Advances in the Economic Analysis of Participatory & Labor-Managed Firms, in: Advances in the Economic Analysis of Participatory & Labor-Managed Firms, pages 1-22, Emerald Group Publishing Limited.
    8. Ahrens, Carolin & Oehmichen, Jana & Wolff, Michael, 2018. "Expatriates as influencers in global work arrangements: Their impact on foreign-subsidiary employees’ ESOP participation," Journal of World Business, Elsevier, vol. 53(4), pages 452-462.
    9. Pendleton, Andrew & Robinson, Andrew, 2021. "Why walk away from an easy gain in wealth? Evidence from a UK stock option plan," Journal of Behavioral and Experimental Finance, Elsevier, vol. 31(C).

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    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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