Employee Stock Purchase Plans

Gary V. Engelhardt, Brigitte C. Madrian

NBER Working Paper No. 10421
Issued in April 2004
NBER Program(s):   AG   CF   LS   PE

Employee stock purchase plans (ESPPs) are designed to promote employee stock ownership broadly within the firm and provide another tax-deferred vehicle for individual capital accumulation in addition to traditional pensions, 401(k)s, and stock options. We outline the individual and corporate tax treatment of ESPPs and the circumstances under which ESPPs will be preferred to cash compensation from a purely tax perspective. We then examine empirically ESPP participation using administrative data from 1997-2001 for a large health services company that employs approximately 30,000 people. The picture that emerges from the analysis of these data suggests that there is substantial non-participation in these plans even though all employees could increase gross compensation through participation. We discuss a number of potential explanations for non-participation.

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Document Object Identifier (DOI): 10.3386/w10421

Published: Engelhardt, Gary V. and Brigitte C. Madrian. "Employee Stock Purchase Plans," National Tax Journal, 2004, v57(2,Jun), 385-406. citation courtesy of

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