Selling Company Shares to Reluctant Employees: France Télécom's Experience

In 1997, France Télécom, the French telecommunications firm, went through a partial privatization. The government offered current and prior France Télécom employees the opportunity to buy portfolios of shares with various combinations of discounts, required holding periods, and levels of downside protection. We adapt a neoclassical model of investment decision-making that takes into account firm-specific human capital and holding period restrictions to predict how employees might respond to the share offers. Using a new database that tracks over 200,000 eligible participants, we analyse the employees' characteristics and their decisions regarding (a) whether to participate; (b) how much to invest; and (c) what form of stock alternatives they selected. The results are broadly consistent with the neoclassical model. However, the amount of funds invested in the stock plans seems driven by a different set of forces than the decision to participate. While former employees and retirees are less likely to participate in the offering, they tend to invest more than others conditional on participating. We suspect that this phenomenon reflects a 'threshold effect', which we attempt to measure. Employees forewent benefits equal to one to two months' salary by failing to participate. Finally, we find that the characteristics of the average chosen portfolios are broadly consistent with theoretical predictions from our neoclassical model, but almost all potential participants underweighted the most valuable asset, a decision hard to reconcile with rational portfolio choice.