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The Productivity Effects of Profit Sharing, Employee Ownership, Stock Option and Team Incentive Plans: Evidence from Korean Panel Data

  • Kato, Takao

    ()

    (Colgate University)

  • Lee, Ju Ho

    ()

    (KDI School of Public Policy and Management)

  • Ryu, Jang-Soo

    ()

    (Pukyong National University)

We report the first results for Korean firms on the incidence, diffusion, scope and effects of diverse employee financial participation schemes, such as Profit Sharing Plans (PSPs), Employee Stock Ownership Plans (ESOPs), Stock Option Plans (SOPs) and Team Incentive Plans (TIPs). In do doing, we assemble important new panel data by merging data from a survey of all Korean firms listed on Korean Stock Exchange which enjoys an unusually high response rate of 60 percent with accounting data from their corporate proxy statements. Our estimated fixed effect models of production functions reveal consistently that the introduction of a PSP or a TIP will lead to a significant increase in productivity (about 10 percent) whereas no such evidence found for ESOPs or SOPs. We also find that the productivity payoff appears to be more long-lasting for PSPs than for TIPs. Finally, our fixed-effect estimates suggest that PSPs and TIPs tend to be substitutes rather than complements in their productivity effects.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5111.

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Length: 31 pages
Date of creation: Aug 2010
Date of revision:
Publication status: published in: Tor Eriksson (ed.), Advances in the Economic Analysis of Participatory and Labor-Managed Firms Volume 11, Bingley: Emerald, 2010
Handle: RePEc:iza:izadps:dp5111
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  1. Derek C. Jones & Panu Kalmi & Antti Kauhanen, 2006. "Human Resource Management Policies and Productivity: New Evidence from An Econometric Case Study," Oxford Review of Economic Policy, Oxford University Press, vol. 22(4), pages 526-538, Winter.
  2. S. Black & L. Lynch, 1997. "How to compete: the impact of workplace practices and information technology on productivity," LSE Research Online Documents on Economics 20298, London School of Economics and Political Science, LSE Library.
  3. Martin J. Conyon & Richard B. Freeman, 2002. "Shared modes of compensation and firm performance: UK evidence," LSE Research Online Documents on Economics 20060, London School of Economics and Political Science, LSE Library.
  4. Kandel, Eugene & Lazear, Edward P, 1992. "Peer Pressure and Partnerships," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 801-17, August.
  5. Derek C. Jones & Takao Kato & Jeffrey Pliskin, 1999. "Profit Sharing and Gainsharing: A Review of Theory, Incidence, and Effects," Macroeconomics 9903010, EconWPA.
  6. Zwick, Thomas, 2004. "Employee participation and productivity," Labour Economics, Elsevier, vol. 11(6), pages 715-740, December.
  7. Ohkusa, Y & Ohtake, F, 1997. "The Productivity Effects of Information Sharing, Profit-Sharing and ESOPs," ISER Discussion Paper 0435, Institute of Social and Economic Research, Osaka University.
  8. Takao Kato, 2003. "The Recent Transformation of Participatory Employment Practices in Japan," NBER Chapters, in: Labor Markets and Firm Benefit Policies in Japan and the United States, pages 39-80 National Bureau of Economic Research, Inc.
  9. Nakamura, Masao & Nakamura, Alice, 1991. "Risk behavior and the determinants of bonus versus regular pay in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 5(2), pages 140-159, June.
  10. David Card & Richard Blundell & Richard B. Freeman, 2004. "Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980-2000," NBER Books, National Bureau of Economic Research, Inc, number card04-1, October.
  11. Wadhwani, S. & Wall, M., 1988. "The Effects Of Profit-Sharing On Employment, Wages, Stock Returns And Productivity: Evidence From Uk Micro-Data," Papers 311, London School of Economics - Centre for Labour Economics.
  12. Jed DeVaro, 2005. "Teams, Autonomy, and the Financial Performance of Firms," Labor and Demography 0508004, EconWPA.
  13. Alex Bryson & Richard Freeman, 2008. "How does shared capitalism affect economic performance in the UK?," LSE Research Online Documents on Economics 51596, London School of Economics and Political Science, LSE Library.
  14. Heywood, John S. & Jirjahn, Uwe & Wei, Xiangdong, 2008. "Teamwork, monitoring and absence," Journal of Economic Behavior & Organization, Elsevier, vol. 68(3-4), pages 676-690, December.
  15. Takao Kato & Ju HO Lee & Kang-sung Lee & Jang-soo Ryu, 2005. "Employee participation and involvement in korea: evidence from a new survey and field research," International Economic Journal, Taylor & Francis Journals, vol. 19(2), pages 251-281.
  16. Ichniowski, Casey & Shaw, Kathryn & Prennushi, Giovanna, 1997. "The Effects of Human Resource Management Practices on Productivity: A Study of Steel Finishing Lines," American Economic Review, American Economic Association, vol. 87(3), pages 291-313, June.
  17. Cin, Beom-cheol & Smith, Stephen C, 2002. "Employee Stock Ownership and Participation in South Korea: Incidence, Productivity Effects, and Prospects," Review of Development Economics, Wiley Blackwell, vol. 6(2), pages 263-83, June.
  18. Richard B. Freeman & Morris M. Kleiner & Cheri Ostroff, 2000. "The Anatomy of Employee Involvement and Its Effects on Firms and Workers," NBER Working Papers 8050, National Bureau of Economic Research, Inc.
  19. Susan Helper, 1997. "Complementarity and Cost Reduction: Evidence from the Auto Supply Industry," NBER Working Papers 6033, National Bureau of Economic Research, Inc.
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