Working Paper: NBER ID: w10421
Authors: Gary V. Engelhardt; Brigitte C. Madrian
Abstract: Employee stock purchase plans (ESPPs) are designed to promote employee stock ownership broadly within the firm and provide another tax-deferred vehicle for individual capital accumulation in addition to traditional pensions, 401(k)s, and stock options. We outline the individual and corporate tax treatment of ESPPs and the circumstances under which ESPPs will be preferred to cash compensation from a purely tax perspective. We then examine empirically ESPP participation using administrative data from 1997-2001 for a large health services company that employs approximately 30,000 people. The picture that emerges from the analysis of these data suggests that there is substantial non-participation in these plans even though all employees could increase gross compensation through participation. We discuss a number of potential explanations for non-participation.
Keywords: Employee Stock Purchase Plans; Tax Treatment; Employee Participation
JEL Codes: H2; J3; G1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tax treatment (H20) | ESPP participation (M52) |
| employee characteristics (M51) | ESPP participation (M52) |
| liquidity constraints (E41) | ESPP participation (M52) |
| lack of understanding (D80) | ESPP participation (M52) |
| transaction costs (D23) | ESPP participation (M52) |
| non-tax considerations (K34) | decision to provide ESPPs (H55) |