Employee stock purchase plans – gift or incentive? evidence from a multinational corporation

Many large listed firms offer workers the opportunity to buy shares in the firm at discounted rates through employee stock purchase plans (ESPP). The discounted rate creates a gift exchange, where the firm hopes that workers who accept the gift reciprocate with greater loyalty and effort. But ESPPs diverge from standard gift exchange or efficiency wage models. Employees have to invest some of their own money by purchasing shares at the discounted rate to accept the gift. A sizeable number choose to reject the gift. In addition, the value of the ESPP gift varies with the share price and thus with the performance of the firm and the effort of workers in total. For workers who buy subsidized shares, an ESPP sets up a group incentive pay system analogous to profit sharing, all-employee stock options, or an employment ownership scheme that makes part of workers' compensation depend on company performance.