Employee Ownership: Management Entrenchment vs. Reward Management

Abstract

Employee ownership is often used as a reward management tool but also as entrenchment mechanism. This paper develops a model suggesting that employee ownership policy reveals management quality. Good managers would use employee ownership as a reward management tool whereas bad managers would implement it for entrenchment motives. We bring about three main conclusions: (i) Bad managers use employee ownership as an entrenchment mechanism. (ii) This latter phenomenon increases the cost of employee ownership for good managers. (iii) Avoiding these problems necessitates that employee ownership policy should not be discretionary.