EMPLOYEE STOCK OWNERSHIP, a plan whereby em ployees are offered an opportunity to purchase the stock of the company which employs them. Plans of this kind are usually undertaken by a company in the belief that they will promote a more intimate relationship with employees, encourage thrift, at tract a better type of employee and possibly reduce turnover. From the standpoint of the employee, there are both advantages and disadvantages in such stock ownership plans. While they pro vide an opportunity for regular savings and perhaps profitable in vestment of funds, they tend to multiply his economic risks in that his job and his invested savings are both dependent on the success of the same enterprise. The stock sold to employees may be either "common" or "preferred," the desirability of either de pending largely upon the financial structure of the company in volved. Whether or not the company wishes its employees to hold stock carrying a voting privilege, also becomes a consideration in the choice of stock to be sold. The stock itself is usually secured by treasury issue or by the setting aside of a block of new issue for sale to employees. Occasionally, a special employees' stock is issued by the company. While the actual sale of stock is usually made directly by the company to its employees, there are in stances where the company allows the sale to be carried on through an employees' organization.
Instead of selling stock to employees at the prevailing market price, many employers offer the stock at a price slightly below its market value, in order partially to protect the employee against price fluctuation, and also to make the offer additionally attractive. Method of payment is usually liberal and where deferred pay ments are allowable, arrangement is often made for payroll de duction. Title to the stock, however, ordinarily does not pass until the payments have been completed, nor are dividends cred ited to the employee except as payments on account. The sale or transfer of stock is usually restricted. Many companies offer inducements to employees to hold stock. These inducements most frequently take the form of extra dividends. Where the sale of stock is restricted, a re-purchase provision is included in the plan. The success of employee stock ownership plans depends pri marily upon the liberality and soundness of the plan, the existence of mutual confidence between the employer and the employee, and the business integrity of the organization as a whole.
Employee stock ownership first developed in England in the lat ter part of the last century. In America, where numerous plans have been tried, it has been frequently associated with profit sharing. The usual profit-sharing arrangement has been a distri bution among employees of a part of the net profits of business, often in the form of shares of stock. Neither employee stock ownership nor profit-sharing have become a general practice in America. In fact, most experiments have been of brief duration.
In 1929 a National Industrial Conference Board report listed companies as using plans of employee stock ownership. It estimated that approximately 1,000,000 wage and salaried workers subscribed for securities totalling more than $1,000,000,000. Indi cations are that employee stock ownership decreased since 1929. A study of 5o plans by the Industrial Relations section of Prince ton university showed 31 of them discontinued after 1932, and where they continued were restricted to higher paid and executive groups. It appears that stock ownership was so divided that la bour owned but 1% of corporate stock. In 1924 when this esti mate was made, non-wage earners in income groups of over $3,000 owned 74% of such stock. (0. G. S.; X.)