Employee participation in share plans brings benefits all round, say Alex Bryson and Richard Freeman
Many big corporations use all-employee share plans in a package of high-involvement management tools. Under these plans, they can offer regular employees, as well as management-level staff, financial incentives to hold shares in the firm. In many cases, the incentives make the decision to take part almost a no-brainer. But even so, some workers stay out of the plan or join it later than would be in their best financial interest.
On the employer’s side, the best recent UK evidence corroborates a sizeable amount of literature from the US and other countries that finds higher labour productivity in the presence of share plans. This explains why the UK government and those in many other countries offer tax breaks to encourage such plans.
So why, if share plans are such a good deal, do some workers not take them up? And why do some employers not offer such plans?
Research we did at a large multinational company found plan participation varied from 34% to 75% across the four countries in which it operates, and from 11% to 100% in the 100 or so separate offices or worksites of the firm.
One reason why workers do not join a share plan is that HR departments cannot, by themselves, sell its benefits.
Employees listen to co-workers, rather than HR communications, when deciding whether to join the plan. The decision is similar to buying consumer goods, where people trust their friends and neighbours more than advertisements. The best way for an employer to encourage staff to sign up to a plan is to use co-workers as advocates, but we find this is rarely attempted in practice.
We conducted a web-based survey of the multinational’s workers (which got a 36% response rate) and compared the attitudes and behaviours of plan members and non-members in the same office and the same business division. We found plan members are less likely to be searching for another job. Plan members also had lower absence rates, and were more likely to go the extra mile for their employer. Workers with bigger stakes in the plan (size of contributions or number of shares) report larger positive results than those with small stakes.
These results help explain the findings in the UK and elsewhere, that generally show modest but positive productivity boosts from share plans. Lower staff resignation rates allow companies to recover their investment in employees’ firm-specific skills and knowledge. Lower absence rates keep teams working more effectively, and going the extra mile can be critical in dealing with unexpected events.
Why do some employers not introduce share plans to all workers? Organisations where workers have little opportunity to gain skills or make decisions will see smaller benefits from introducing plans than those where workers can take an active role in decisions. Some managements may fear that sharing ownership with workers will reduce the size of their stake.
But there are probably many employers that are unaware of the benefits of employee share ownership and might be surprised by what it does for their staff and their bottom line.
Alex Bryson is senior research fellow at the National Institute of Economic and Social Research and Centre for Economic Performance at the London School of Economics
Richard Freeman is professor at Harvard University and Centre for Economic Performance at the London School of Economics
How does shared capitalism affect economic performance in the UK?, Bryson, A and Freeman, R. Shared capitalism at work: employee ownership, profit and gain sharing, and broad-based stock options, D Kruse, R Freeman, J Blasi, University of Chicago Press
Does share ownership affect employee behaviour? Evidence from a multinational corporation, Bryson, A and Freeman R B (forthcoming), Mimeo
Shared capitalism at work: employee ownership, profit and gain sharing, and broad-based stock options, Kruse, D, Freeman, R and Blasi, J, Univ of Chicago Press
Employee stock ownership, involvement and productivity: an interaction-based approach, Pendleton, A and Robinson, A, Industrial and Labor Relations Review, vol 64, no 1, 3-28
Read more articles from Thought leaders: Academic insights