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E M P L O Y E E B E N E F I T S , C O M P E N S A T I O N
& P E N S I O N L A W
Vol. 3, No. 17: September 12, 2002
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Publisher: LSN Employment, Labor, Compensation & Pension Journals
a division of
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and Social Science Research Network (SSRN)
Editor: PAMELA PERUN
Urban Institute
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Copyright: SSEP, Inc. 2002. All rights reserved.
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Topic of This Issue:
Company Stock
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T A B L E of C O N T E N T S
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NEW and FORTHCOMING ARTICLES
"Employee Stock Ownership in Economic Transitions: The Case of
United Airlines"
Bank of America Journal of Applied Corporate Finance, Vol.
63, No. 2, 1998
JEFFREY N. GORDON
Columbia Law School
WORKING PAPERS
"Company Stock and Retirement Plan Diversification"
OLIVIA S. MITCHELL
University of Pennsylvania, Wharton School
National Bureau of Economic Research (NBER)
STEPHEN P. UTKUS
Vanguard Center for Retirement Research
"Investor Behavior and the Purchase of Company Stock in 401(k)
Plans - The Importance of Plan Design"
NELLIE LIANG
Board of Governors of the Federal Reserve System
SCOTT J. WEISBENNER
University of Illinois at Urbana-Champaign
Department of Finance
Massachusetts Institute of Technology (MIT)
Department of Economics
National Bureau of Economic Research (NBER)
"Employee Stock Ownership Plans and Corporate Restructuring:
Myths and Realities"
MYRON S. SCHOLES
Stanford University
Graduate School of Business
National Bureau of Economic Research (NBER)
MARK A. WOLFSON
Stanford University
Graduate School of Business
"Employee Ownership, Employee Attitudes, and Firm Performance"
DOUGLAS L. KRUSE
Rutgers University
JOSEPH BLASI
Rutgers University
"Shared Modes of Compensation and Firm Performance: UK Evidence"
MARTIN CONYON
Wharton School, University of Pennsylvania
RICHARD B. FREEMAN
National Bureau of Economic Research (NBER)
London School of Economics & Political Science
(LSE)
Centre for Economic Performance
Harvard University
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N E W and F O R T H C O M I N G Articles
_________________________________________________________________
"Employee Stock Ownership in Economic Transitions: The Case of
United Airlines"
Bank of America Journal of Applied Corporate Finance, Vol.
63, No. 2, 1998
BY: JEFFREY N. GORDON
Columbia Law School
Contact: JEFFREY N. GORDON
Email: Mailto:JGORDON@LAW.COLUMBIA.EDU
Postal: Columbia Law School
Ctr. for Law and Economic Studies
435 West 116th Street
New York, NY 10027 UNITED STATES
Phone: 212-854-2316
Fax: 212-854-7946
ABSTRACT:
Employee stock ownership is usually discussed in terms of its
normative desirability as a model of workplace relations or its
general (in)efficiency properties. This paper considers employee
stock ownership transactions as an adjustment mechanism for
economic change. The starting point is the "employee stock
ownership" is not a self-defining form and that specific
institutions of economic participation and governance
participation very much affect the viability of any particular
transaction. The paper then considers the various rationales for
employee stock ownership in situations of economic transition,
rejecting claims of "just allocation" but suggesting that such
transactions can overcome bargaining pathologies and thereby
conserve the value of the firm. One important question is
whether employee stock ownership transactions produce a
transitional organizational form that quickly reverts to the
standard firm or an organizational form that manages economic
transitions in a superior way.
These issues are explored in the recent employee acquisition
of a majority ownership of United Air Lines. The transaction
provided for long-term employee ownership, not simply a
transitional form, and so locked up the employee stock in an
employee pension plan and provided employees with longterm
governance rights. The evidence to date suggests that employee
ownership has enhanced UAL's competitive position but that
governance pressure from employees when their interests are
directly at stake is a potentially destabilizing force.
______________________________
W O R K I N G P A P E R Abstracts
_________________________________________________________________
"Company Stock and Retirement Plan Diversification"
BY: OLIVIA S. MITCHELL
University of Pennsylvania, Wharton School
National Bureau of Economic Research (NBER)
STEPHEN P. UTKUS
Vanguard Center for Retirement Research
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=304461
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Paper ID: Pension Research Council Working Paper No. 2002-4
Contact: OLIVIA S. MITCHELL
Email: Mailto:mitchelo@wharton.upenn.edu
Postal: University of Pennsylvania, Wharton School
Wharton Financial Institutions Center
3641 Locust Walk
Philadelphia, PA 19104-6365 UNITED STATES
Phone: 215-746-5706
Fax: 215-898-0310
Co-Auth: STEPHEN P. UTKUS
Email: Mailto:steve_utkus@vanguard.com
Postal: Vanguard Center for Retirement Research
100 Vanguard Boulevard, J24
Malvern, PA 19355 UNITED STATES
ABSTRACT:
This paper explores the risks and benefits of holding company
stock in employer-sponsored defined contribution (DC) retirement
plans. We address three questions: (1) What is the role and
function of company stock in such plans? (2) Who might be
affected by enhanced portfolio diversification in such plans?
and (3) What mechanisms exist, or might be developed, to enhance
portfolio diversification if more diversification were deemed
useful? Firms offer company stock within DC plans in an effort
to enhance economic performance, though evidence is mixed on
productivity gains from stock ownership. We demonstrate that
concentrated stock positions arise most often in larger firms'
DC plans where sponsors direct employer contributions and
restrict diversification. Stock concentration also arises
because participants systematically underestimate the risk of
employer stock and over-rely on its past performance in making
investment decisions. In a retirement system with concentrated
stock positions, there will always be some participants who
forfeit DC plan savings to firm bankruptcy. Encouraging plan
diversification mitigates this risk, but it could also induce
some companies to redirect plan contributions to other forms of
stock compensation or to replace stock contributions with cash
compensation. We conclude by describing policy tools that might
be used to encourage diversification and discuss conditions for
their effective implementation.
______________________________
"Investor Behavior and the Purchase of Company Stock in 401(k)
Plans - The Importance of Plan Design"
BY: NELLIE LIANG
Board of Governors of the Federal Reserve System
SCOTT J. WEISBENNER
University of Illinois at Urbana-Champaign
Department of Finance
Massachusetts Institute of Technology (MIT)
Department of Economics
National Bureau of Economic Research (NBER)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=327157
Paper ID: NBER Working Paper No. W9131
Date: August 2002
Contact: SCOTT J. WEISBENNER
Email: Mailto:weisbenn@uiuc.edu
Postal: University of Illinois at Urbana-Champaign
Department of Finance
340 Wohlers Hall, MC 706
1206 South Sixth Street
Urbana, IL 61820 UNITED STATES
Phone: 217-333-0872
Fax: 217-244-9867
Co-Auth: NELLIE LIANG
Email: Mailto:NLIANG@FRB.GOV
Postal: Board of Governors of the Federal Reserve System
20th and C Streets, NW
Washington, DC 20551 UNITED STATES
Paper Requests:
Full-Text downloads are available from SSRN Online for $5.
ABSTRACT:
Using panel data for nearly 1,000 companies during 1991 to 2000,
this paper documents that the average share of participant's
discretionary 401(k) contributions in company stock was almost
20 percent, and then relates this share to plan design features
and firm financial characteristics. We find that the number of
investment alternatives offered, n, and whether the company
requires some of the match to be in company stock are key
factors of the share of total contributions in company stock. We
cannot reject the hypothesis that participants invest 1/n of
their contributions in company stock. In addition, participants
do not offset an employer match in company stock with a smaller
share of their own contributions to company stock, contrary to
efficient diversification. Workers also appear to view other
plan restrictions as providing cues about the desirability of
purchasing company stock. Thus, plan design is very important in
determining the share of 401(k) assets in company stock.
JEL Classification: G11, J30, J32
______________________________
"Employee Stock Ownership Plans and Corporate Restructuring:
Myths and Realities"
BY: MYRON S. SCHOLES
Stanford University
Graduate School of Business
National Bureau of Economic Research (NBER)
MARK A. WOLFSON
Stanford University
Graduate School of Business
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=242129
Paper ID: NBER Working Paper No. W3094
Date: September 1, 1989
Contact: MYRON S. SCHOLES
Email: Mailto:fscholes@Gsb-Lira.Stanford.edu
Postal: Stanford University
Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015 UNITED STATES
Phone: (650) 723-1921
Fax: (650) 725-7979
Co-Auth: MARK A. WOLFSON
Email: Mailto:WOLFSON_MARK@GSB.STANFORD.EDU
Postal: Stanford University
Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015 UNITED STATES
Paper Requests:
Full-Text downloads are available from SSRN Online for $5.
ABSTRACT:
During the first six months of 1989 U.S. corporations acquired
over $19 billion of their own stock to establish employer stock
ownership plans (ESOPs). We evaluate the common claims that
there exist unique tax and incentive contracting advantages to
establishing ESOPs. Our analysis suggests that, particularly for
large firms, where the greatest growth in ESOPs has occurred,
the case is very weak for taxes being the primary motivation to
establish an ESOP. The case is also weak for employee incentives
being the driving force behind their establishment. We conclude
that the main motivation for the growth of ESOPs is their
anti-takeover characteristics.
JEL Classification: 32, 52
______________________________
"Employee Ownership, Employee Attitudes, and Firm Performance"
BY: DOUGLAS L. KRUSE
Rutgers University
JOSEPH BLASI
Rutgers University
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=225341
Paper ID: NBER Working Paper No. W5277
Date: September 1995
Contact: DOUGLAS L. KRUSE
Email: Mailto:DKRUSE@RCI.RUTGERS.EDU
Postal: Rutgers University
180 University Avenue
Newark, NJ 07102 UNITED STATES
Phone: 908-445-5991
Fax: 908-445-2830
Co-Auth: JOSEPH BLASI
Email: not available
Postal: Rutgers University
180 University Avenue
Newark, NJ 07102 UNITED STATES
Paper Requests:
Full-Text downloads are available from SSRN Online for $5.
ABSTRACT:
Employee ownership in U.S. companies has grown substantially in
the past 20 years. This paper reviews and provides some
meta-analyses on the accumulated evidence concerning the
prevalence, causes, and effects of employee ownership, covering
25 studies of employee attitudes and behaviors, and 27 studies
of productivity and profitability (with both cross-sectional and
pre/post comparisons). Attitudinal and behavioral studies tend
to find higher employee commitment among employee-owners but
mixed results on satisfaction, motivation, and other measures.
Perceived participation in decisions is not in itself
automatically increased through employee ownership, but may
interact positively with employee ownership in affecting
attitudes. While few studies individually find clear links
between employee ownership and firm performance, meta-analyses
favor an overall positive association with performance for ESOPs
and for several cooperative features. The dispersed results
among attitudinal and performance studies indicate the
importance of firm-level employee relations, human resource
policies, and other circumstances.
______________________________
"Shared Modes of Compensation and Firm Performance: UK Evidence"
BY: MARTIN CONYON
Wharton School, University of Pennsylvania
RICHARD B. FREEMAN
National Bureau of Economic Research (NBER)
London School of Economics & Political Science
(LSE)
Centre for Economic Performance
Harvard University
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=281079
Paper ID: NBER Working Paper No. W8448
Date: August 2001
Contact: MARTIN CONYON
Email: Mailto:Conyon@wharton.upenn.edu
Postal: Wharton School, University of Pennsylvania
Department of Management
Philadelphia, PA 19104-6365 UNITED STATES
Phone: 215-898-0744
Fax: 215-898-0401
Co-Auth: RICHARD B. FREEMAN
Email: Mailto:FREEMAN@NBER.ORG
Postal: National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138 UNITED STATES
Paper Requests:
Full-Text downloads are available from SSRN Online for $5.
ABSTRACT:
This paper examines the use and consequences of shared
compensation plans (profit sharing, profit related pay, SAYE
schemes and company stock option plans) in a sample of UK
workplaces and firms in the 1990s. The use of these plans has
increased over time, in part in response to government programs.
The evidence shows that companies and workplaces adopting shared
compensation practices have had higher productivity than other
firms, but the effects vary among programs, suggesting that the
particulars matter a lot in aligning shared compensation and
work place activities. Consistent with incentive theory, the
evidence also shows that firms and workplaces with shared
compensation practices have a higher incidence of shared
decision-making/information sharing practices.