SUKANYA SENGUPTA, Affiliation Unknown

Conventional wisdom suggests that higher performance is observed when employee-share-ownership (ESO) schemes coexist with employee participation arrangements. However, the evidence is inconclusive and it has been suggested that performance benefits occur in ESO workplaces only when employees are actually involved in the decision-making process. Drawing on the cross-section data from the 1998 Workplace Employee Relations Survey, the article shows that higher productivity is observed in those workplaces where unions coexist with ESO schemes. This result highlights the relevance of unions to High Performance Work Systems.

E. HAN KIM, University of Michigan - Stephen M. Ross School of Business
Email: ehkim@umich.edu
PAIGE PARKER OUIMET, University of Michigan at Ann Arbor - Stephen M. Ross School of Business
Email: pshelby@umich.edu

Adopting employee share ownership (ESO) plans leads to a higher firm value when the plan is small, i.e., less than 5% of outstanding shares. When the plan is larger, however, we observe no changes in firm value. This inverse U-shaped relation between shareholder value and ESO size is robust to firm fixed effects and controls for possible endogenous selection biases in the timing of plan implementations. The value relation appears driven by changes in employee compensation: Large ESOP adoptions are followed by substantial increases in employee compensation, whereas small ESOPs show no such increases. These results imply that most of productivity gains generated by ESOPs accrue to employees (shareholders) when employees have substantial (small) control rights. In addition, compensation increases following large ESOPs are smaller when financial leverage is higher. This leverage effect on compensation, in turn, seems to have a favorable impact on firm valuation. The value negating impact of large ESOPs becomes weaker with higher leverage.

OLAF KORN, Georg-August-Universität Göttingen
Email: okorn@uni-goettingen.de
CLEMENS PASCHKE, Affiliation Unknown
MARLIESE UHRIG-HOMBURG, University of Karlsruhe (TH)
Email: derivate@fbv.uni-karlsruhe.de

With the introduction of the accounting standards FAS 123 and IFRS 2 for executive stock options an important change towards "fair value accounting" has taken place. As companies are now forced to value their stock options at grant date for accounting purposes, the robustness of prices against misspecifications of the valuation model has become a very important issue. We address this issue by first analyzing certain building blocks of existing stock option plans with regard to their robustness properties. Based on such an analysis, we show as the main contribution of the paper how robust stock option plans can be designed. The resulting stock option plans are both transparent in structure and reasonable in respect to the incentives they provide in order to increase shareholder value. This paper therefore concludes that stock options can be reliably expensed, if the corresponding plans are properly designed.

ROBERT ASHFORD, Syracuse University - College of Law
Email: rhashford@aol.com

Many people know about Employee Stock Ownership Plans (ESOPs) which, along with profit-sharing and pension plans, are treated as deferred compensation plans under Section 401 and related sections of the Internal Revenue Code. ESOPs have been established by thousands of American corporations, including some of the largest, and cover millions of employees. There is a national trade association (The ESOP Association), that is now celebrating its 50th year in existence, and other organizations established to support employee ownership, including the Ohio Center for Employee Ownership that first published this article in its publication entitled Owners At Work (2006/2007)

Most people aware of ESOPs, however, do not realize that ESOPs are part of a broader approach to expanded capital ownership, broader prosperity, and economic justice known as binary economics. Binary economics was first advanced by Louis Kelso, who is also widely known as the inventor of the ESOP. But Louis Kelso's approach to economic theory is only partially reflected in the present ESOP legislation. Binary economics offers a plan for more widespread economic prosperity for all people (not limited to employees) than is presently offered by mainstream economics.

Once ESOP participants understand binary economics, they may choose to advocate legislative reforms that will better serve their own economic interests and also the economic interests of their companies and the country as a whole. These reforms would transform ESOPs into much more powerful Super ESOPs in a full binary economy of the future. The Super ESOP will empower employees to acquire shares of stock in their companies entirely with the earnings of capital and on much more favorable terms than at present. Moreover, the Super ESOP will empower employees and others to acquire a diversified portfolio of shares in other credit-worthy companies entirely with the future earnings of the shares they acquire.

This article briefly describes the binary economics and its important connection with the ESOPs. For a fuller explication if binary economics, see the following four articles which can be downloaded for free from SSRN.COM: (1) Binary Economics - An Overview, (2) Binary Economics and the Case for Broader Ownership, (3) Capital Democratization, and (4) Memo on Binary Economics to Women and People of Color Re: What Else can Public Corporations Do for Your Clients?.

MICHELLE BROWN, University of Melbourne - Department of Management
Email: m.brown@ecomfac.unimelb.edu.au
INGRID LANDAU, University of Melbourne - Law School
Email: imlandau@unimelb.edu.au
RICHARD MITCHELL, Monash University - Department of Business Law & Taxation, and Department of Management
Email: richard.mitchell@buseco.monash.edu.au
ANN O'CONNELL, University of Melbourne - Law School
Email: a.oconnell@unimelb.edu.au
IAN RAMSAY, University of Melbourne - Law School
Email: i.ramsay@unimelb.edu.au

Non-executive employees are increasingly being offered the opportunity to participate in employee share ownership plans. In many cases, companies provide their employees with shares or options as a 'gift', either on a one-off or regular basis. Many plans, however, are structured so as to require employees to contribute to the value of the securities. In the cases of contributory plans, the reasons why employees choose to participate are not always clear. This paper reviews existing studies and presents a conceptual framework to explain why employees participate in employee share plans. It examines the relationship between the decision to participate in a plan and a number of demographic and workplace-specific variables. It also identifies key factors that may moderate this relationship, such as the extent of company communication on the plan and company performance. This conceptual framework has been developed on the basis of a synthesis of previous studies and twelve semi-structured interviews conducted with human resource managers and trade union representatives within publicly listed companies.

SIMI KEDIA, Rutgers University, Newark, School of Business-Newark, Department of Finance & Economics
Email: skedia@rbsmail.rutgers.edu
SHIVARAM RAJGOPAL, University of Washington - Michael G. Foster School of Business
Email: rajgopal@u.washington.edu

We find that fixed effects related to the location of a firm's headquarters explain variation in broad based option grants after controlling for industry effects and firm characteristics traditionally known to affect option granting. Location matters because of local labor market conditions and social interaction with neighboring firms. Broad based option grants are higher (i) when the firm's stock prices co-move more with stock prices of other firms located in that Metropolitan Statistical Area (MSA); (ii) in states that are less likely to enforce non-compete agreements; and (iii) in MSAs where employees prefer options because firms there have enjoyed abnormally high stock returns. Social influence affects broad based option grants because firms grant more options to rank and file workers when other firms in the MSA grant more broad based options. The neighborhood's option granting practices matter most when the firm is located in a region with a highly educated work force. All results with the exception of the impact of non-compete agreements hold when firms located in California are excluded. However, these results do not hold for top executive option grants.