NewsWire--AUGUST 13, 1996

TOPIC: Agency Relationships, Employee Stock Ownership

SOURCE: "Should Avis Try Harder--For Its Employees? Critics Say A Proposed Sale Could Shortchange Worker-Owners," by Aaron Bernstein, Business Week, August 12, 1996, 68-69.

SYNOPSIS: The article discusses the employee stock ownership plan (ESOP) adopted at Avis, and the controversy surrounding the recent decision by Avis management to sell the company to HFS Inc. At issue is the distribution of the selling price among Avis employee-owners, management, and Avis' other shareholder, General Motors. The article offers an opportunity to discuss ESOPs, their potential impact on the agency relationship, and some interesting new agency problems that arise as the result of an ESOP.

DISCUSSION QUESTIONS:

1. What is an ESOP?

2. What are some advantages of ESOPs?

3. What are some disadvantages of ESOPs?

4. How has the ESOP worked at Avis?