Profit sharing and employee ownership have become a worldwide phenomenon.
Since the early 1980s, Taiwan’s high-tech industries have gained substantial growth, in particular in the information technology (IT) industry. It is often claimed that one of the major reasons for this success is due to the unique employee financial participation scheme adopted by many Taiwanese high-tech firms during the period of high growth. Taiwan-style profit sharing and ESOPs can be viewed as a combination plan of profit sharing and employee ownership because companies adopting these plans, in general, share profits with employees in stock form. This article has investigated the effects of Taiwan-style profit sharing and ESOPs on productivity, profitability, employment and wage. Drawing on data from Taiwan Economic Journal (TEJ), which provides rich information on company profile, financial data, employment, wages, as well as profit sharing and employee stock bonuses statistics of all Taiwan’s publicly-traded companies across time, this paper uses a sub-sample of the data set, consisting of 115 high-tech firms. The data set is a panel data set in design, which helps us control for the endogeneity problem and firm-specific fixed effects.
Our research results show that Taiwan-style profit sharing and ESOPs, to a greater extent, lead to higher firm performance in terms of productivity and profitability. Furthermore, the results tend to suggest that Taiwan-style profit sharing and ESOPs increase employment level and growth on the one hand, and have the stabilizing effects on employment on the other hand, depending on various measures of employee financial participation. Concerning the wage effects, the empirical results illustrate that only Taiwan-style ESOPs lead to high total compensation. Our results seem to reflect the reality in Taiwan’s high-tech sector in the last decade. Under circumstances characterized with high growth in the 1990s, profit sharing in general and Taiwan-style ESOPs in particular are often used as the important strategic compensation for attracting and retaining talented employees in the firm, which in turns convert to firm performance and higher employment level and total compensation.
It should be noted that our analyses of productivity primarily refer to measures of sales volume. Future research should collect more information on different productivity measures in order to make the investigation more plausible, consisting of total factor productivity, Tobin’s Q, labor hours, quality measures etc. Also, future research should do more work on investigating the diversity of employee financial participation programs in Taiwan.
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