Winners and Losers of Employee Stock Ownership Plans

• In Event: Mobility, Wealth, and Wages

Abstract

This year and last year mark the 50th anniversary of the two pieces of tax legislation that created Employee Stock Ownership Plans (ESOPs). In these past 50 years, however, there has been no systematic attempt to analyze who benefits from the adoption of these plans, and what costs are incurred in return. This paper is the first of its kind to examine firm and participant outcomes after a firm establishes an ESOP. We create a panel of firms establishing an ESOP beginning in 2009 or 2010 and track their outcomes through 2022. We use Department of Labor 5500 filings matched to tax return data to create a treatment group of employers who establish an ESOP, whose outcomes are compared to a group of statistically similar firms who do not have ESOPs. We assess wage and retirement distribution outcomes for employees in ESOP vs. non-ESOP firms, survival rates of firms that convert to an ESOP, and tax benefits accruing to ESOP vs. non-ESOP firms. We also examine stock valuations of firms that sell to an ESOP compared to index fund benchmarks. Our findings, while preliminary, suggest that ESOP adoption increases the wages of existing employees, decreases the wage growth of new employees, and increases the share of employees at a firm who are longer tenured.

Authors

• Kathleen Mackie, Joint Committee on Taxation

• Elena Derby, Joint Committee on Taxation

• Thomas Willingham, University of Virginia