The Effectiveness of Employee Stock Ownership Plans Essay

The Effectiveness of Employee Stock Ownership Plans - Essay Example Employees do not have to pay taxes on the contributions when they work in a company. Only when they leave their job, they have to make all payments. It means that employees have a strong motivation to increase their productivity and generate higher revenues for the company in general not only because it increases their personal wage but also because they are the co-owners of the company. Thus, the effect on employees’ motivation is highly positive. Another important aspect is that employees are interested in the successful implementation of job functions of their colleagues while in the absence of this plan, they are primarily neutral. If other employees work more efficiently, it will lead to a higher gross output, and the market value of the company will increase. Consequently, the given employee may receive higher revenues even if his/her personal productivity has not increased. Thus, it may be expected that the corporate culture within such organizations will be better than in other companies. ESOP encourages the development of non-material assets in the company. However, ESOP also has some disadvantages for employees. I particular, it concentrates all employees’ shares in one company. It leads to over-concentration of risks that is generally considered as being highly negative. Therefore, employees tend to become too dependent over the dynamics of market prices of the company. In some situations, this dynamics does not correspond to their productivity. For example, during economic recessions, stock prices usually fall dramatically that may decrease the revenues of employees even if their productivity keeps rising. Another problematic aspect is that ESOP does not always result in a higher productivity of employees. It means that motivation alone is not sufficient for higher output and better overall economic results. Moreover, some employees may hope to receive a higher remuneration in an