Capitalizing workers : the impact of employee stock ownership plans in selected developing countries

strategy for strengthening the private sector by extending capital ownership to economically disenfranchised groups. Such plans can supplement employee benefits and improve workers' income and retirement security, while providing companies with capital formation, access to new credit sources, tax advantages, and gains in productivity. This study examines two ESOP programs in each of three developing countries - Costa Rica, Thailand, and Zimbabwe - and two, for comparison, in the United States. Also provided are discussions of the theoretical framework behind ESOP's and of different types of plans. All the companies studied were large and financially successful, but their success could not definitely be linked to the presence of ESOP's. All but one were enthusiastic about their ESOP's - the exception being a Zimbabwean company which borrowed money to purchase shares which later declined drastically in price. As none of the developing countries provided tax benefits or other incentives to encourage ESOP's, all the plans were instituted at some cost to the company or to stockholders. Three companies contributed post-tax earnings to purchase newly issued stock for employees; two provided an interest-free loan to a trust for that purpose. Thus the funds flowed back into the company so the main financial cost was the dilution of the value of existing shares. Employees' gains varied considerably: some employees obtained substantial income or retirement security, while others had not yet received any financial benefits. One company gave the employees' trust a controlling interest in the firm and others gave employees increased involvement in personnel management issues. Generally, national and company-specific factors affected the plans' success, precluding generalizations as to their impact. In conclusion, the authors recommend an experimental A.I.D. program to promote ESOP's and evaluate their impact. The possible elements of such a program are described. Appendices provide detailed information on the factors behind the adoption of ESOP's and their national- and company-level impacts. A 53-item bibliography (1958-82) is included.