The Impact of Employee Shareholding Option Plans on Company Performance in South Africa
Date
2011-05-30
Authors
Motswenyane, Papillon
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Abstract
Employee Share Option Plans (ESOPs) are widely applied in the South African context to disseminate wealth to Historically Disadvantaged South Africans (HDSAs). This opinion is affirmed by an increased application of the concept on a number of Broad Based Black Economic Empowerment (BBBEE) transaction deals concluded recently.
The research explored the impact of these schemes on company performance and also investigated the resultant economic impact on participating employees. Data was collected from JSE-listed companies that have implemented these schemes over an eight year period between the years 2000 and 2008. Tobin‟s Q ratios were constructed using data from various sources with annual reports as the primary source of data. An event analysis was undertaken by measuring Tobin‟s Q of the said companies before and after the implementation of the respective schemes.
A secondary process collated data from a survey of employees participating in the schemes to measure their increased productivity and also to ascertain financial employee spin-offs from the schemes.
The research found inconclusive evidence that ESOPs impact positively on company performance. However evidence of a strong correlation between potential productivity increases and the schemes was confirmed. Also, a relationship between an employee‟s level and term of participation to financial reward was established.
This research will assist companies in structuring their ESOPs in relation to individual employee contribution to enhance company performance and will also provide guidance on ESOPs financial impact on employees.
Description
MBA - WBS
Keywords
Employee Share Option Plans, Shares, Stock options, Company performance