IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp12303.html
   My bibliography  Save this paper

Do Employee Share Owners Face Too Much Financial Risk?

Author

Listed:
  • Kruse, Douglas L.

    () (Rutgers University)

  • Blasi, Joseph

    () (Rutgers University)

  • Weltmann, Dan

    () (Western Connecticut State University)

  • Kang, Saehee

    () (Rutgers University)

  • Kim, Jung Ook

    () (Rutgers University)

  • Castellano, William

    () (Rutgers University)

Abstract

A major theoretical objection against employee ownership is that workers become inadequately diversified and exposed to excessive financial risk. Recent theory concludes that 10-15% of a worker's wealth portfolio can be prudently invested in employer stock provided the rest of the portfolio is properly diversified. This paper analyzes employee share ownership in U.S. family financial portfolios using data from the 2004-2016 Survey of Consumer Finances. We find that 15.3% of families with private-sector employees had employer stock in their portfolio, with a median value of $6,000 and a median percent of family net worth of 3.1%. About one in five (19.2%) of the families with employer stock exceed the 15% threshold. This may be overstated given that the 15% threshold pertains to purchased stock and not to stock granted with no sacrifice by the employee. A higher percentage of families exceed the threshold for stock bought directly than for stock in pension plans. The analysis shows that employee ownership appears to generally add to, rather than substitute for, other wealth, which lessens the financial risk. We also find that families with employer stock are found to express more tolerance of financial risk, have higher self-rated knowledge of personal finances, and are more likely to understand the value of diversification. While financial risk does not appear to represent a substantial problem in practice for most employee share owners, a small minority may face excessive risk. We conclude with approaches to address excessive financial risk in company stock when it appears.

Suggested Citation

  • Kruse, Douglas L. & Blasi, Joseph & Weltmann, Dan & Kang, Saehee & Kim, Jung Ook & Castellano, William, 2019. "Do Employee Share Owners Face Too Much Financial Risk?," IZA Discussion Papers 12303, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp12303
    as

    Download full text from publisher

    File URL: http://ftp.iza.org/dp12303.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Robert Buchele & Douglas L. Kruse & Loren Rodgers & Adria Scharf, 2010. "Show Me the Money: Does Shared Capitalism Share the Wealth?," NBER Chapters, in: Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing, and Broad-based Stock Options, pages 351-375, National Bureau of Economic Research, Inc.
    2. Meulbroek, Lisa, 2005. "Company Stock in Pension Plans: How Costly Is It?," Journal of Law and Economics, University of Chicago Press, vol. 48(2), pages 443-474, October.
    3. Joseph Blasi & Michael Conte & Douglas Kruse, 1996. "Employee Stock Ownership and Corporate Performance among Public Companies," ILR Review, Cornell University, ILR School, vol. 50(1), pages 60-79, October.
    4. Burdín, Gabriel & Dean, Andrés, 2009. "New evidence on wages and employment in worker cooperatives compared with capitalist firms," Journal of Comparative Economics, Elsevier, vol. 37(4), pages 517-533, December.
    5. George A. Akerlof, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, Oxford University Press, vol. 97(4), pages 543-569.
    6. E. Han Kim & Paige Ouimet, 2014. "Broad-Based Employee Stock Ownership: Motives and Outcomes," Journal of Finance, American Finance Association, vol. 69(3), pages 1273-1319, June.
    7. Richard B. Freeman & Joseph R. Blasi & Douglas L. Kruse, 2010. "Introduction to "Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing, and Broad-based Stock Options"," NBER Chapters, in: Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing, and Broad-based Stock Options, pages 1-37, National Bureau of Economic Research, Inc.
    8. Harry Markowitz & Joseph Blasi & Douglas Kruse, 2010. "Employee stock ownership and diversification," Annals of Operations Research, Springer, vol. 176(1), pages 95-107, April.
    9. John W. Budd, 2010. "Does Employee Ignorance Undermine Shared Capitalism?," NBER Chapters, in: Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing, and Broad-based Stock Options, pages 291-316, National Bureau of Economic Research, Inc.
    10. repec:aea:jecper:v:32:y:2018:i:2:p:155-72 is not listed on IDEAS
    11. Douglas L. Kruse & Richard B. Freeman & Joseph R. Blasi, 2010. "Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing, and Broad-based Stock Options," NBER Books, National Bureau of Economic Research, Inc, number krus08-1, October.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    employee ownership; financial risk; wealth; diversification;

    JEL classification:

    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J54 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Producer Cooperatives; Labor Managed Firms
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • P13 - Economic Systems - - Capitalist Systems - - - Cooperative Enterprises

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp12303. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Holger Hinte). General contact details of provider: http://www.iza.org .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.