The productivity effects of profit sharing, employee ownership, stock option and team incentive plans: evidence from Korean panel data

Abstract

Compensation systems have been shifting away rapidly from a fixed-wage contractual payment basis in many nations around the world (Ben-Ner & Jones, 1995). Particularly prominent is the explosion in the use and interest in employee financial participation schemes, such as profit sharing, employee stock ownership, stock option, and team incentive (or gainsharing) plans. With the rising use and interest in such employee financial participation schemes, many studies have examined their effects on enterprise performance in industrialized countries.1 Most prior studies consider either profit sharing plans (PSPs) in which at least part of the compensation for no executive employees is dependent on firm performance (typically profit)2 or employee stock ownership plans (ESOPs) through which the firm forms an ESOP trust consisting of its nonexecutive employees and promotes ownership of its own shares by the trust.3 Moreover, an increasing number of firms (in particular “new economy” firms) are extending the use of stock option plans (SOPs) to include nonexecutive employees in recent years.4 Finally, with the rising popularity of “high-performance workplace practices (notably self-directed teams),” more firms are introducing team incentive plans (TIPs), which makes at least part of the compensation for employees dependent on performance of the team or work group to which they belong.5

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