Employee Stock Ownership and Participation in South Korea: Incidence, Productivity Effects, and Prospects

The paper examines employee stock ownership plans in South Korea. The incidence and characteristics of ESOPs in publicly traded manufacturing firms is reported. Korean employees do not participate in ESOPs either financially or in decision‐making to the extent they could under the law. Evidence that tax incentives have very large effects on ESOP purchases is presented. Econometric estimates suggest that an increase in an average ESOP from 2% to 3% of total shares would lead to an increase in output of 2.6%. These results are broadly consistent with OECD countries, despite the smaller ownership shared and weaker employee decision‐making participation in Korea. The policy analysis concludes that ESOPs in Korea are not suitable for pensions; that it is not in employee interests to purchase all shares through initial public offerings (IPOs) and seasoned equity offerings (SEOs); that incentives for longer stock‐holding periods may be appropriate; that improvement in decision‐making participation is desirable; and that changes in repayment methods could make it more attractive for employees to purchase shares.