Wharton Pension Research Council Working Papers

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Working Paper

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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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Copyright/Permission Statement

©2004 Pension Research Council of the Wharton School of the University of Pennsylvania. All Rights Reserved.


This research was conducted with support from the Social Security Administration via the Michigan Retirement Research Center at the University of Michigan, under subcontract to the University of Pennsylvania. Additional support was provided by the Pension Research Council, the Boettner Center for Pensions and Retirement Research, and the Huebner Foundation, all at the Wharton School. The authors offer thanks to Michael Clingman, Steve Goss, Orlo Nichols, Syl Schieber, Alice Wade, and members of the TAMU Applied Micro Seminar, for their helpful comments on earlier versions of this paper, but they absolve them from any errors that remain. Opinions are solely those of the authors and not of the institutions with which the authors are affiliated.

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Date Posted: 30 August 2019