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Employee Ownership and Corporate Performance

An NCEO Issue Brief

by Corey Rosen

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This issue brief, which replaces an older book with the same name, summarizes studies on the relationship between employee ownership, employee participation, and corporate performance that have been performed in the last few decades. Most of the studies are on ESOPs, not on stock options and other forms of equity compensation, simply because most of the research, especially in past years, has been on ESOPs.

Publication Details

Format: PDF, 41 pages
Dimensions: 8.5 x 11 inches
Edition: 1st (January 2011)
Status: Available for electronic delivery

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Understanding the Findings
Research on ESOPs in Closely Held Companies
Joseph Blasi and Douglas Kruse, ESOPs and Corporate Performance in Closely Held Companies
Michael Quarrey and Corey Rosen, Employee Ownership and Corporate Performance
U.S. General Accounting Office, Employee Stock Ownership Plans: Limited Evidence of Impact on Corporate Performance
Gorm Winther, Peter Kardas, and Paul Somers, Two Studies on Employee Ownership and Corporate Growth in New York and Washington State
The Ohio Employee Ownership Center, A Study of Employee Ownership in Ohio
Jill Maxwell, Corey Rosen, and Ryan Weeden, Open-Book Management and Corporate Performance
Ohio Employee Ownership Center, ESOPs, Employee Involvement, and Corporate Performance: What Works Best?
Research on ESOPs and Corporate Performance in Publicly Traded Companies
Robert Stretcher, Steve Henry, and and Joseph Kavanugh, The ESOP Performance Puzzle in Public Companies
Olubunmi Faleye, Vikas Mehrotra, and Randall Morck, When Labor Has a Voice in Corporate Governance
Hamid Mehran, Unleashing the Power of Employee Ownership
Mary Ducy, Zahid Igbal, and Aige Akhigbe, Employee Stock Ownership Plans and Cash Flow Performance of Publicly Traded Firms
Margaret M. Blair, Douglas L. Kruse, and Joseph R. Blasi, Employee Ownership: An Unstable Form or a Stabilizing Force
The Effects of ESOPs on Wealth, Income, and Workers' Compensation Costs
Joseph Blasi and Douglas Kruse, ESOPs and Corporate Performance in Closely Held Companies
Corey Rosen, Retirement Security and Wealth Accumulation in S ESOP Companies
Peter Kardas, Adria Scharf, and Jim Keogh, Wealth and Income Consequences of Employee Ownership"
Leslie Hakala, Employee Ownership and Workers' Compensation Rates
Stock Options and Corporate Performance
Ariel Hochberg and Laura Lindsey, Incentives, Targeting and Firm Performance: An Analysis of Non-Executive Stock Options
James Sesil and Yu Peng Li, Executive and Broad-Based Stock Options: Evidence From U.S. Panel Data
Douglas Kruse, Joseph Blasi, Jim Sesil, and Maya Krumova, Broadly Granted Stock Options and Corporate Performance
James Sesil and Marya Krumova, Broad-Based Stock Options Before and After the Market Meltdown
James Sesil, Joseph Blasi, Douglas Kruse, and Maya Krumova, Performance Effects of Options in "New Economy" and Unionized Companies
David Larcker, Christopher Ittner, and Richard Lamber, The Structure and Performance Consequences of Equity Grants to Employees of New Economy Firms


From "Research on ESOPs and Corporate Performance in Closely Held Companies"

Kruse and Blasi are the preeminent researchers in the employee ownership field, and have previously worked with the NCEO on studies on ESOPs and stock options. In this study, they obtained files from Dun and Bradstreet on ESOP companies that had adopted their plans between 1988 and 1994. They matched these companies to non-ESOP companies that were comparable in size, industry, and region. The study focused on those companies that had sales and employment data available for a period three years before the ESOP companies set up their plans and three years after. The sales and employment growth data were then compared for each year for each paired company. They also checked the companies' filings with the Department of Labor to determine which of the companies had other retirement-oriented benefit plans. Finally, they looked to see what percentage of the companies remained in business in the period from 1995 through 1997.

The process yielded 343 ESOP companies and 343 paired companies for the overall sample. However, missing data meant that employment data were available only for 254 ESOP companies and 234 pairs, 138 companies and 77 pairs for sales, and 115 ESOP companies and 65 pairs for sales/employee (some pair companies could be used for more than one ESOP company).

To illustrate the methodology, assume Bill's Hardware set up an ESOP in 1990. Bill's sales and employment data for 1987, 1988, and 1989 would be compared to Joe's Hardware (a non-ESOP company) for the those years, as well as for the three-year period after 1990. Bill's sales grew at 3% per year in the pre-ESOP period, while Joes's only grew at 2%. In the years after Bill's Hardware adopted its ESOP, however, its sales grew at 4% per year, while sales growth at Joe's stayed at 2% per year. The conclusion would be that, relative to Joe's Hardware, Bill's grew 1% per year faster in the post-ESOP period than before. In other words, the ESOP at least appears to be associated with a one percent increase in sales over what would have been expected.