ESOPs Increase Employee Wealth and Wages

A review of existing research on ESOPs found that, in addition to the equity benefits of the ESOP, overall wages of employees of ESOP companies are "at least as high as—and may be higher than" the wages of their non-ESOP counterparts. Steven Freeman of the University of Pennsylvania asserts that this "may partly reflect higher average productivity levels in employee ownership companies, the use of high wages in combination with employee ownership to motivate workers, the influence of workers in setting wages, or beneficence on the part of management that adopts ESOPs."

UPDATE 10/27/09: The NCEO website discusses research on The Impact of ESOPs on Employee Compensation that finds that, rather than replacing wages or benefits with stock, employees are “significantly better compensated in ESOP companies than are employees in comparable non-ESOP companies.” One study found that the median hourly wage is 5% to 12% higher, and another found that total compensation is 5.2% higher for companies with more than 5% ESOP ownership in the company.