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Key Studies on Employee Ownership and Corporate Performance

Type of PlanPerformance MeasureStudy PeriodPerformance ImpactSource
ESOPs, Private CompaniesAnnual growth post-ESOP relative to pre-ESOP, indexed for comparable company data1988-1997Sales growth: +2.4%
Employment growth: +2.3%
Productivity growth: +2.3%
Joseph Blasi, Douglas Kruse, and Dan Weltman, "Firm Survival and Performance in Privately-Held ESOP Companies," Sharing Ownership, Profits, and Decision-Making in the 21st Century (Advances in the Economic Analysis of Participatory & Labor-Managed Firms, Volume 14) pp.109-124.
Annual growth post-ESOP relative to pre-ESOP, indexed for comparable company data1982-1986Sales growth: +3.8%
Employment growth: +3.4%
Michael Quarrey and Corey Rosen (both of the National Center for Employee Ownership), Harvard Business Review, Sept/Oct 1987
ESOPs, Public CompaniesTobin's Q (the ratio of the company's stock value to its book equity value)1980-2004ESOPs led to an 8.12% increase in Tobin's Q relative to the industry median."Employee Capitalism or Corporate Socialism? Broad-Based Employee Stock Ownership," E. Han Kim of the University of Michigan and Page Ouimet of the University of North Carolina, paper for American Finance Association 2010 Annual Conference
Return on assets, profits, return on equity, and sales growth1998-2004Compared to comparable companies:

Return on assets: +5.5%
Net profit margin: +10.3%
Return on equity: +5.6%
Sales growth rate: -0.8%
Robert Stretcher, Steve Henry, and Joseph Kavanaugh, "The ESOP Performance Puzzle in Public Companies," Journal of Employee Ownership Law and Finance, Fall 2006
Tobin's Q, long-term investment, operating risk, productivity, and growth1995-2001Compared to all non-ESOP companies:

Median Tobin's Q: -9.0%
Median annual sales growth: -3.0%
Total factor productivity: -4.7%
Olubunmi Faleye, Vikas Mehrotta, and Randall Morck, "When Labor Has a Voice in Corporate Governance," National Bureau of Economic Research Working Paper, No. 11254, 2005
ESOPs and Employee CompensationSalaries and retirement benefits compared to comparable employees in comparable companies using all ESOP companies in Washington State and a sample of comparable non-ESOP companies1997Wages 5% to 12% higher

Total retirement assets 2.6 times greater

Diversified retirement assets roughly comparable
Peter Kardas and Jim Keogh of the Washington Department of Community, Trade, and Economic Development, and Adria Scharf of the University of Washington, "Wealth and Income Consequences of Employee Ownership," National Center for Employee Ownership, 1998
Public companies with ESOPs compared to comparable non-ESOP companies1980-2004Effect on employee compensation in ESOP companies owning:

Less than 5%: + 0.8%
More than 5%: + 5.2%
"Employee Capitalism or Corporate Socialism? Broad-Based Employee Stock Ownership," E. Han Kim of the University of Michigan and Page Ouimet of the University of North Carolina, paper for American Finance Association 2010 Annual Conference
Participation in other retirement plans for ESOP participants; value of company-contributed assets to retirement plans in ESOPs versus non-ESOP companies.2004-2007ESOP participants are at least as likely to participate in a second retirement plans as comparable non-ESOP participants are likely to be in any retirement plan. Company contributed assets to retirement plans in ESOP companies are 2.2 times greater than company-contributed assets to retirement plans in non-ESOP companies.Loren Rodgers, National Center for Employee Ownership, analysis of Form 5500 filings for all ESOPs and data from the Employee Benefit Research Institute (2010)
ESOPs have better rates of return and lower volatility than 401(k) plans.1990-2010ESOPs had a rate of return of 9.1% per year between 1990 and 2010 while 401(k) plans had a return of 7.8%. ESOPs outperformed 401(k) plans in 15 of 230 years and tied in two. ESOPs were also less volatile over the period.U.S. Department of Labor, Private Pension Plan Bulletin Historical Tables and Graphs, Nov. 2012
Employee Ownership and Layoffs2002, 2006, and 2010 General Social Survey.2002-2010Working adults who reported being in employee ownership plans were one-third to one-fourth as likely to report having been laid off in the prior year as those not in these plans. Data compiled by Joseph Blasi and Dougls Kruse, Rutgers University.
Before-and-after performance of public companies with broad-based option plans (same definition as above). Companies in three-year post-plan period compared to before and after data for comparable companies without plans.1985-1987 and 1995-1997Productivity: +14.8%
Return on assets: +2.5%
Joseph Blasi, Douglas Kruse, Maya Krumova, and James Sesil,
Stock Options and Corporate PerformancePerformance of public companies with broad-based stock option plans (more than 50% of full-time employees receive grants) compared with comparable companies without plans.1997-2002Companies with broad-based plans saw productivity rise 20% to 33% above comparable firms after plans were implemented, with medium-sized firms at the higher end of the scale.James Sesil and Maya Krumova, "Broad-Based Stock Options Before and After the Market Meltdown," Rutgers Working Papers, 2002.
Before-and-after performance of public companies with broad-based option plans (same definition as above). Companies in three-year post-plan period compared to before and after data for comparable companies without plans.1985-1987 and 1995-1997Productivity: +14.8%
Return on assets: +2.5%
Joseph Blasi, Douglas Kruse, Maya Krumova, and James Sesil, Broadly Granted Stock Options Improve Corporate Performance
Industry-adjusted return on assets in the 44% of S&P Super 1500 companies that had option plans where more than half the value of the awards went to the bottom 90% of the work force.1997-2004"A move from the 25th percentile of per-employee delta [that is, increased option grants per employee] to the 75th percentile of per employee delta implies an increase of 0.17% in ROA and a 0.15% increase in cost-adjusted ROA. Since the average per employee delta in our sample is about $760, a $1000 increase represents a little over a doubling of pay to performance sensitivity."

Only companies with fewer than the median number of employees saw improvement, however, and in companies with narrowly focused awards actually, options had a negative impact on performance.
Yael Hochberg and Laura Lindsey, "Incentives, Targeting and Firm Performance: An Analysis of Non-Executive Stock Options," Review of Financial Studies vol. 23, no. 11 (November 2010)
Note: To be included, studies must look at employee ownership companies compared to similar non-employee ownership or all non-employee ownership companies. Company performance studies must compare pre-ESOP to post-ESOP performance relative to the competition. The studies selected represent the most recent studies that have the largest and most representative samples. There has been no attempt to include only positive studies.

For details on all of the major research on this topic, see our publication Employee Ownership and Corporate Performance for a detailed summary or this article on our Web site for a more basic summary.

Sources for Future Research

If you want to do further research in the area of employee ownership, the NCEO maintains a variety of useful data sources. For details, go to the article on the site NCEO Data Sources of Employee Ownership.

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