Effects of Employee Share Ownership Plan on Earning Per Share of Commercial Banks in Kenya

Abstract

(ESOP) is a type of worker budgetary cooperation that gives on workers the privilege to partake in abundance of organization and, in principle at any rate, the privilege to practice some level of control over organization issues. The objective of this study was to analyse the effects of employee share ownership plan on earning per share of commercial banks in Kenya. This study was guided by the following theories; Principal-Agent Theory, Incentive Contract Theory and Equity Theory. Target populace for this study was all the 44 commercial banks operating in Kenya. Review carried a comparative analysis between the banks that have approved ESOPs against those that have not. Those with approved ESOPs include; Equity Bank, Kenya Commercial Bank, Investments and Mortgage Bank and Housing Finance. The secondary data was collected from the banks audited financial statements for the years 2012-2016. The data collected included; banks net income, outstanding shares, number of ESOPS and total number of shares. Being that the study was descriptive in nature, both quantitative analysis and inferential analysis was used as data analysis technique. The data collected was run through various regression model so as to clearly bring out the impacts of change in ESOPs on earning per share. The study found out that there were several factors influencing the earning per share of commercial banks, which are ESOPS, company size, number of branches and number of employees. All the variables influenced earning per share positively. The four independent variables that were studied (ESOPS, company size, number of branches and number of employees) explain 87.5% of earning per share as represented by the average R2. From the findings, it can be observed that ESOPS affects earning per share positively but not to a very great extent. The study concludes that ESOPs have a positive influence on the earning per share. ESOPs are used for many reasons, including providing for a tax-favored, flexible transition of ownership in closely held companies and as a means of providing an additional benefit that ties employee and company interests together. The study recommends that commercial banks should concentrate on those policies which encourage the adoption of the ESOPs among banks since they may be helpful in enhancing earning per share of the banks and therefore achievement of robust economic growth. It is essential to have someone in the company who knows ESOPs well who is charged with working with a qualified ESOP plan administrator. The banks management should put in place and implement corporate policies that better align the interest of employees and employers so as to promote employee engagement and productivity. This can be achieved by encouraging employees to take up the ESOPs and by having a high-involvement and open culture necessary for an ESOP to thrive. Due to positive relationship of ESOPs and earning per share, public policy recommendation should be formulated by the Government of Kenya to promote broad based ESOP which in turn enhances national saving and facilitate as well as encouraging the development of small to medium, privately owned enterprises including startup companies.