Incentives, Monitoring, and Employee Stock Ownership Plans: New Evidence and Interpretations

25 Pages Posted: 17 Sep 2006

Abstract

This paper reviews the theory and evidence for agency theory-based explanations for employee stock ownership plans found in the financial participation literature. The UK Workplace Employee Relations Survey 1998 is used to test whether share plans substitute for direct monitoring and individual incentives. Contrary to some predictions in the literature, individual incentives are found to be complements of share plans, while other measures of monitoring costs provide mixed results. However, it is found that monitoring costs and a wide range of performance targets explain the conjunction of stock plans and individual incentives. It is suggested that share plans are used to mitigate dysfunctional effects of individual incentives by engendering cooperation and trust, and by broadening the range and time frame of desired performance outcomes.

Suggested Citation

Pendleton, Andrew, Incentives, Monitoring, and Employee Stock Ownership Plans: New Evidence and Interpretations. Industrial Relations: A Journal of Economy and Society, Vol. 45, No. 4, pp. 753-777, October 2006, Available at SSRN: https://ssrn.com/abstract=930787 or http://dx.doi.org/10.1111/j.1468-232X.2006.00450.x

Andrew Pendleton (Contact Author)

University of York (UK) ( email )

Heslington
York YO10 5DD
United Kingdom

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