Academic journal article Review of Business & Finance Studies

The Employee Stock Ownership Program Phenomena: Evidence from Indonesia

Academic journal article Review of Business & Finance Studies

The Employee Stock Ownership Program Phenomena: Evidence from Indonesia

Article excerpt


The objective of this study is to explain the employee stock ownership program phenomenon in public companies in Indonesia. The ownership of companies in Indonesia is concentrated by a single controlling shareholder. Sometimes, the board of directors and board of commissioners of a company or his/her family are the controlling shareholders. This study is interested in describing the employment stock option program phenomenon. This study collects data from the Indonesian Stock Exchange database of companies conducting employee stock ownership programs. There were 45 companies conducting this tye of program between 1999 and 2011. In 2011, the number of public companies listed on the Indonesian Stock Exchange was 451. This implies that about 9.97 percent of public companies conduct such a program. Why is it then, that more companies do not use this program? Almost 33.56% of public company directors in Indonesia are the family of the controlling shareholder. Therefore, he/she feels that this program will not have any impact on the manager because the manager has the same interest as the controlling shareholder. Thus, the program is not attractive in Indonesia as a way to reduce the agency problem between shareholders and manager. It is only relevant for public companies with dispersed ownership.

JEL: M41; G32

KEYWORDS: Employee Stock Ownership Program, Corporate Ownership, Concentrated, Dispersed


Management practices used throughout the world can affect a company's practices in Indonesia. These practices generally occur in developed countries and include the employee ownership program. It is better known as Employee Stock Ownership Program (ESOP). This program is introduced by the management of human resources in the form of corporate ownership by employees. One objective of this program is to align the interests between agents (managers) and principles (owners). The alignment can reduce agency problems between owners and managers.

Engaging in this type of program is decided in a general meeting of shareholders, or the extraordinary meeting of shareholders, as in PT Garuda Indonesia Tbk. Based on a decision of the Extraordinary Meeting of Shareholders (EGM) of PT Garuda Indonesia Tbk, on November 15, 2010 as amended by Decision Circular Shareholders on January 26, 2011, the shareholders approved the ownership program by the management and employees (Management and Employee Stock Allocation/MESA). It was done by allotment of shares to the special buyer, which consists of stock bonus and stock discount. It also provides the option right to management and employees (Management and Employee Stock Option Plan/MESOP). Based on the approval of the shareholders, the directors set the number of shares for the MESA program at almost 5% of the total issuance of new shares and for the stock option program MESOP as much as 0.97% of the total issued and paid up shares after the public offering.

In Indonesia, accounting for these programs is set in the Statement of Financial Accounting Standards No. 53. The statement was effective from October 1, 1998. Stock options are offered as a reward to the employee. It is measured and recognized at the fair value of the instruments. The fair value of the instruments can be determined by the service of the employee as a fair value, after deducting from the amount to be paid at the time of the equity instruments given (LAI, 2007).

According to Machfoedz (1999), a stock option is the right to buy shares at a special price. It is usually given to executives for their dedication to the company over a certain period. The employee stock option program is a program directed to provide an opportunity for employees to own stock in the company through stock options. Implementation of the ESOP in Indonesia is not yet optimal. Few public companies currently use this program. The question is why the program is not getting more response from the public companies in Indonesia. …

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