The Employee Ownership Update
June 3, 2013
New Research on ESPPsIn their paper "Do Non-Executive Employees Have Information? Evidence from Employee Stock Purchase Plans," Ilona Babenko at Arizona State University and Rik Sen at Hong Kong University of Science and Technology find that higher participation in employee stock purchase plans (ESPPs) predicts higher future stock prices.
Babenko and Sen looked at 10-K filings for 1,000 companies and found 460 firms that had ESPPs over the entire 10 years. They found that "each year companies issue on average 0.30% of their outstanding shares for purchase by employees in these plans. Employees' annual ESPP contributions average $22.1 million per year or approximately $1,630 per employee. Although we do not have comprehensive data on participation in ESPPs (other than share issuance), the participation rate for companies that voluntarily report is less than 40% on average."
Over the 10-year period, the authors found that the stock price of the companies with above-median employee purchases had subsequent annual stock price increases of 6% to 8% more than those in the bottom half, with most of the predictive power occurring in the subsequent first and second years. The authors conclude that the likely explanation is that employees may have better information about the future of the company than outside investors. This finding is reinforced by the fact that the relationship between participation in the plans and future stock price is stronger in smaller companies, where employees presumably have more knowledge about the company relative to investors than is the case for larger companies where there is more public information available.
Demographic Wave of Retirees Does Not End with Baby BoomersLIMRA, which provides research support for the insurance and financial services industry, recently released a report concluding that "For years researchers suggested that as the Baby Boom generation begins to retire, they will create a large statistical bump, which will subside as members of the generation pass. That theory is not proving to be true." Baby Boomers will retire through 2029, and based on census data, roughly 4.1 million Americans will reach age 65 in 2023. When "Gen Next" begins to retire in 2023, slightly fewer people are expected to retire for most years from 2030 to 2050, but the decrease will be relatively minor, with the number retiring per year never expected to fall below 3.5 million per year. By comparison, 3.4 million people will reach age 65 this year.
Purchase by Yahoo! Benefits Employee-Owners at TumblrYahoo!'s purchase of Tumblr was a windfall for employees. News reports indicate that each of Tumblr's 178 employees will receive at least $371,000 from cashing in their equity rewards. The site's first 10 employees are each $6.2 million richer, while the first 30 employed will make $3.3 million.
Worker Cooperative Proposed for Mexicana AirlinesAn association of three pilots' unions at Mexicana Airlines (Asociación Sindical de Pilotos Aviadores) and other employees has proposed the creation of a worker cooperative that would operate some of Mexicana's fleet of 110 airplanes. Mexicana has been under bankruptcy protection since 2010, and the proposal for the cooperative is based on receiving financial support from the Mexican federal government, which some federal authorities have indicated may be possible.
Become Certified in Equity CompensationThe Certified Equity Professional Institute (CEPI) at Santa Clara University offers a certificate for professionals in equity compensation. Learn more about the CEPI and the certification process on the CEPI's Web site. NCEO members who want to take the November 2 exam can save $200 on the standard amount. In addition, the exam price will increase by an additional $200 on July 1. You can sign up for the exam by contacting the CEPI at 408-554-2187 or firstname.lastname@example.org. Mention that you are an NCEO member (if you're not, you can become one here to claim your discount).
Author biography and other columns in this series