Employee Share Ownership Plans Research Articles

Employee ownership in China: new evidence

PurposeWith specific big-data mining worked on 61,522 firm announcements, we discovered a diverse Employee Share Ownership Plan (ESOP) model in China, called “Core-Staff-Based ESOPs.” Distinct from standard broad-based or executive-based ESOPs, these specific targeted-broad-based ESOPs require the qualification for participants, involving the participation of senior executives, directors at the middle level and any other employees that make particular contributions to firms. We take on the challenge to analyze ESOP mechanism, firm characteristics and performance in the view of organizational ecology and resource-based choice-making, and explore which factors have influenced the ESOP development in China.Design/methodology/approachWe utilize a combination of approaches including qualitative and quantitative methods, and construct the main database of 117,767 firm-quarter data.FindingsFirstly, based upon our institutional research, we find no coercive mechanisms that force all the Chinese listed firms to implement ESOPs since 2005. Secondly, our binary logistic regressions identify ESOP firms’ specific properties significantly distinct from non-ESOP firms, and draw profiles for these ESOP firms. Thirdly, our panel regression test results sustain the rational of ESOP mechanism, demonstrating that ESOPs enable Chinese firms to improve performance both in profits and their industry positions. Finally, with further quantitative tests, we find out this ESOP design’s limitations and the heterogenous effects due to China’s environments.Originality/valueThe discovery of Core-staff-based ESOPs contributes a diversity to the standard framework of ESOPs, enhances our understanding of China’s ESOP development, and provides new evidence for ESOP performance.

Employee financial participation and corporate social and environmental performance: Evidence from European panel data

AbstractCompensation and benefit practices are mainly considered as instruments to align employee behaviour to an organization's strategic goals, such as economic outcomes. Going beyond this economic focus, this study examines whether and how employee financial participation, may drive corporate sustainability performance (CSP; i.e. social and environmental performance). We investigate the relationship between employee share ownership, stock option and profit‐sharing plans, on the one hand, and CSP, on the other hand. In addition, we investigate the relationship between narrow‐based employee share ownership plans (only eligible for top management) and broad‐based employee share ownership plans (all employees eligible), on the one side, and CSP, on the other side. Using a unique European panel dataset, the results indicate that companies with (broad‐based) employee share ownership plans portray higher CSP, while companies with profit‐sharing plans exhibit lower CSP when there is no share ownership plan present. Also, the positive effect of broad‐based employee share ownership plans on CSP is magnified when the employees own a larger stake in the company. The results indicate that employee share ownership increases stakeholder orientation, strengthening the mutual interests of the organization and employees to long‐term investments in terms of CSP, at the same time broadening their orientation to long‐term external stakeholders’ interests.

How employee share ownership plans impact firms' market value: A conflict of interest theory approach

AbstractWe investigated whether the market places a higher value on banks with employee share ownership plans (ESOPs) than on those without them. Using a variety of empirical models, we found that ESOPs increased the market value of banks. However, this positive effect occurred only when banks were transparent or located in countries with strong shareholder protection. Our findings demonstrated that if banks were opaque or shareholder protection was weak, outside investors' concerns about managerial entrenchment in widely held banks and behind‐the‐scenes relationships between majority shareholders and managers in closely held banks outweighed the perceived benefits of ESOPs. Our study contributes to the literature by proposing a novel approach to study the effects of ESOPs through the prism of conflict of interest theory. Our findings also shed light on stakeholders' rationales for opposing or adopting ESOPs.

IPOs in New Zealand: Nonfinancial disclosures, valuation, and short-term performance

This study examines the effects of offer characteristics and prospectus disclosures of nonfinancial information on the valuation at the offer and the short-term performance of NZX-listed IPOs over the period 1991–2017. Compared with sector/industry–matched peers, the median IPO is overvalued by 39% at the offer, and more overvalued IPOs do not achieve higher cumulative abnormal returns (CARs) within the first year post-listing. IPOs purchased at the offer yield first-day average abnormal return of 3.4%–3.8% and one-year average CARs of 3.54%–6.21%. Determinants of valuation and short-term performance include the time gap between prospectus registration and offer open, float rate, investment bank reputation, and prospectus disclosures of an employee share ownership plan or a people-focused culture.

Property, ownership and employee ownership: employee control in ESOPs

PurposeMost people associate ownership with the ability to control something. In the USA, employee share (or stock) ownership plans (ESOPs) are one of the principal forms of employee ownership. However, most ESOPs give employees very limited rights of control over the company they own. This paper explore this conflict by examining theories of property and ownership to determine whether the right to participate in decision-making is inherent in the idea of ownership as it is generally understood. Ultimately, the author argues that the law governing ESOPs should be revised to give employees a larger role in the governance of their companies.Design/methodology/approachThis paper considers the concept of ownership both historically and analytically. The author examines the roots of property theory in the work of John Locke and contemporary theorists, as well as contemporary theorizing about ownership.FindingsThere are two kinds of ownership: legal ownership and psychological ownership. In legal ownership, the right to participation is inherent but alienable, so one can legally be an owner of something but have no right of participation. Psychological ownership primarily arises from a sense of control. Legal ownership confers some part of the bundle of rights associated with property. Psychological ownership conveys a feeling of efficacy, responsibility and control, but no formal rights. The author argues that, for employee ownership to be more than mere property-holding, it must include meaningful participation in decision-making, including governance.Research limitations/implicationsThis paper is only concerned with ESOPs in the USA. Although the findings may be applicable, it does not address other forms of employee ownership or employee ownership outside of the USA.Practical implicationsPeople associate ownership with the ability to control something, so when workers are told they own their company but then find they have few control rights, it may undermine their sense of ownership. This then has negative implications for the company's success. To ensure meaningful levels of governance rights, policy-makers should revise the laws governing ESOPs to require greater involvement by employees.Social implicationsClarifying ambiguities around ownership will help support arguments for affording employee-owners greater control rights in their companies, which will have various spill-over effects.Originality/valuePractitioners and scholars alike deploy the term, “ownership” but ascribe different meanings to it. The distinction between legal and psychological ownership is largely lacking in the ESOP literature. Clarifying this distinction will help to move the discussion forward regarding employee participation in ESOPs. In addition, the paper provides an original analysis of property that demonstrates the importance of the right to control, showing that the traditional ESOP structure may violate important aspects of that right.

New social cooperation model in service oriented economy: the case of employee financial participation in the Baltic states

AbstractThe article discusses the issues of employee financial participation in Baltic states which differs and depends on political, legal and economic preconditions. The aim of the research is to analyse employee financial participation as an instrument for collaboration in companies and a new social cooperation model in the Baltic states. The qualitative research was conducted by telephone and e-mail in 2016. The interviews were carried out with the experts (academics, civil servants, lawyers and human resource consultants working in a relevant field) as well some trade union and company representatives. In general, the new policy for supporting employee financial participation has been renewed in Latvia and Lithuania. It started recently with the revision of the legislative framework that was initially established during the privatisation period. The revision of the Law of Companies was driven by the business interest (to have a new effective human resource management tool or to transfer employee share plans from parent companies in Western countries to subsidiaries in the Baltic states) to introduce (or revise, in the case of Lithuania) new employee share ownership (ESO) plans. The research has also proven that there are common similarities in the use of employee financial participation plans despite the existing differences which are based on national features, such as tax and legal regimes, historical development patterns, or economic and structural factors.

Do Employee‐Owned Firms Produce More Positive Employee Behavioural Outcomes? If Not Why Not? A British‐Spanish Comparative Analysis

AbstractWhether ‘employee ownership’ takes the form of worker cooperatives, co‐ownership or simply employee share ownership plans, there are normally high expectations that a range of positive outcomes will result. Yet many empirically based studies tend to find a much more complex picture. An influential segment of that empirical literature has posited the need for a number of mutually reinforcing workforce management components to be in place alongside co‐ownership. Drawing on detailed case research in two large and successful co‐owned retailers in Spain and Britain this paper examines the role of these wider elements supporting employee ownership. We find that employee ownership can be linked to higher productivity and lower employee turnover, while at the same time being linked to higher absenteeism and mixed effects on attitudes. Expectations held by managers and employees are higher; these expectations are not always fully met. The role of managers was also found to be crucial.

The Determinants of Employee Ownership Plan Implementation in EU Countries – the Quest for Economic Democracy: a First Look at the Evidence

Abstract Background and purpose: Kelso’s quest to identify the economic counterpart of political democracy and, as a corollary, his concern about the nature of the economic system’s organisation needed to support the institutions of a politically free society, contributed two important terms: economic power and democracy. Following Kelso’s reasoning, my research study aims to understand the determinants of the implementation of economic democracy, measured by the incidence of employee share ownership plans, within European Union countries. Methodology: Setting out with the theory of one of the founding fathers of employee stock ownership plans, I perform a cross-country analysis spanning five years (2008-2012) to explain the incidence level of employee ownership by independent variables operationalizing the political, legal, socio-educational and economic structures of twenty European Union countries. Using secondary data from the European Federation of Employee Share Ownership, I explain the determinants’ pertinence, while accounting for severe data limitations. Results: I report a strong correlation between employee ownership incidence and the index of economic freedom. However, the labour market’s freedom, the trustworthiness of and confidence in financial markets and the quality of secondary and tertiary education do not deliver clear-cut results. Conclusion: Further research should comprehensively scrutinise country-specific factors regarding corporate governance issues and cross-cultural controls. Employee ownership researchers should consider this field of research to understand why countries that are so-called employee ownership champions are experiencing widening income inequality.

Financial participation and recruitment and retention: causes and consequences

Using a sample of over 5000 establishments in Germany, we analyze the antecedents and effects of profit sharing (PS) and employee share ownership (ESO) with respect to the ability of firms to meet their recruitment and retention objectives and to achieve employment growth. We draw on both economic and behavioral perspectives to argue that firms that adopt PS and ESO plans do so in order to attract and retain employees. Using logistic regression and a propensity score matching technique, we find that firms that face higher recruitment problems, and those that have greater employment growth objectives, are more likely to use ESO and PS. Unlike ESO, PS enhances firm-level employment growth. However, neither ESO nor PS help firms to fully resolve recruitment and retention problems.

Idea humanizacji gospodarki według Gaudium et spes w wybranych rozwiązaniach organizacji przedsiębiorstw

The purpose of this article is to present selected examples of solutions for the organization and performance of business relationships with the idea of humanizing the economy, as postulated in the conciliar constitution Gaudium et Spes. After outlining the economic approach to the issues in this document, the author cites the example of the concept of Corporate Social Responsibility and the Employee Share Ownership Plan, to apply the solutions corresponding to the ideas contained in Gaudium et Spes.

Challenges of new public management (NPM) in Fiji's public sector. Did an employee share-ownership plan work?

This paper provides insights into the implementation of new public management (NPM) practices in Telecom Fiji and whether an employee share-ownership scheme was helpful in the organizational change process. The adoption of NPM practices in Fiji was part of political, economic and public sector reforms introduced after 1989 and was required by international lenders. This paper explains the background and obstacles to the reforms and how the employee share-ownership scheme persuaded employees to commercialize the service. The authors make recommendations for policy-makers in Fiji and other developing countries.

Why do firms adopt employee share ownership? Bundling ESO and direct involvement for developing human capital investments

Purpose – The purpose of this paper is to examine the relationship between employee share ownership (ESO) and employer-provided training. To be more specific, as both ESO and involvement practices can contribute to developing human capital, the paper addresses the question of whether they are substitutes or complements in the relationship with training. Design/methodology/approach – The theoretical hypotheses are tested using the French nationally representative establishment-level survey, REPONSE, which is similar to the British WERS. The sample consists of 1,523 establishments. Findings – The results are consistent with studies conducted elsewhere (e.g. in the UK) and provide novel findings, thereby suggesting a complementarity between ESO and involvement practices with bundles of practices becoming increasingly more complex as training expenditures increase. Research limitations/implications – To provide further insights, future research that uses more precise information regarding ESO plans is needed. Practical implications – Results can provide HR managers with valuable information regarding the organisational characteristics necessary to ensure a fertile ground for their training expenses. Originality/value – The paper reflects a growing awareness that human capital development and share ownership plans may be related and that this relationship might be a more compelling explanation for share ownership plans than the standard agency theory. The contribution of ESO plans to the development of employee competencies may be at least as important as their possible effects on employee motivation and effort.

Broad‐Based Employee Stock Ownership: Motives and Outcomes

ABSTRACTFirms initiating broad‐based employee share ownership plans often claim employee stock ownership plans (ESOPs) increase productivity by improving employee incentives. Do they? Small ESOPs comprising less than 5% of shares, granted by firms with moderate employee size, increase the economic pie, benefiting both employees and shareholders. The effects are weaker when there are too many employees to mitigate free‐riding. Although some large ESOPs increase productivity and employee compensation, the average impacts are small because they are often implemented for nonincentive purposes such as conserving cash by substituting wages with employee shares or forming a worker‐management alliance to thwart takeover bids.

The impact of large-scale employee share ownership plans on labour productivity: the case of Eircom

Large-scale employee share ownership plans (ESOPs) have been a distinctive characteristic of Irish public enterprise reform, with shareholdings of 14.9% being allocated to employees as part of firm restructuring and privatisation programmes. This paper presents a case study analysis of a large-scale ESOP in Eircom, Ireland's former national telecommunications operator. We identify changes in labour productivity (LP) during 8 years before and after the establishment of the company's ESOP and use a framework based on Pierce, Rubenfeld and Morgan (1991, The Academy of Management Review, 16, 121–144) and Pierce, Kostova and Dirks (2001, Academy of Management Review, 26, 298–310) to explore the role played by the ESOP. The ESOP was found to play a key role in enabling firm-level reform through concession bargaining and changes in employee relations, and thereby indirectly affecting LP. However, despite the substantial shareholding and influence of the ESOP, we find that it has failed to create a sense of psychological ownership among employees, and thereby further impact on productivity.

Does Employee Ownership Benefit Value Creation? The Case of France (2001–2005)

The focus of this paper is employee ownership, specifically the role of employee ownership in value creation. Based on a sample of 163 French companies, we have measured the impact of employee share ownership on value creation for both shareholders and stakeholders. Only companies with a sustained employee ownership policy over a 5-year period (from 2001 to 2005), as defined by the French Federation of Employee and Former Employee Shareholders (FAS), have been considered. The results indicate that employee share ownership plans have no effect on shareholders’ or stakeholders’ value creation.

PRIVATIZATION, EMPLOYEE SHARE OWNERSHIP AND GOVERNANCE: THE CASE OF EIRCOM

Sizeable employee share ownership plans (ESOPs) have been a unique feature of Ireland's privatization programme. Since the sale in 1999 of the national telecommunications operator, Eircom, the norm has been to allocate 14.9 per cent of equity to employees. We examine the role of the Eircom ESOP in the post-privatization governance of the company. We find that the ESOP sought to maximize returns to employees as shareholders rather than behave in the interests of a wider set of stakeholders. This is explained in terms of the internal governance of the ESOP, namely its structure and rules, as well as the composition and motivations of the board of the ESOP Trustee.

Why Do Employees Participate in Employee Share Ownership Plans?

Employee share ownership in Australia has, until recently, been largely unchartered, despite considerable public policy interest in the area. Although empirical research has recently been undertaken into the current incidence and forms of broad-based employee share ownership plans (ESOPs) in Australia, and the motivations and objectives of employers in implementing them, the reasons why non-executive Australian employees elect or decline to participate in ESOPs remain unclear. Where shares or options are provided to employees as a ‘gift’, the answer may be considered comparatively straightforward but, in cases of contributory plans, do employees only participate when they perceive the company to be a good financial investment or do non-financial considerations such as the desire to take part in company decision-making also play a role? Are employees’ decisions influenced by their degree of commitment to their employer or are attitudes towards employee share ownership in general more important? What, moreover, is the significance of demographic factors such as age, gender and income? The answers to these questions have implications for corporate governance, human resource practice and public policy. This research report presents findings from a survey of employees at two major Australian companies with operating ESOPs. Part 2 of the report explains the background and methodology behind the survey. Parts 3 and 4 set out, respectively, the key characteristics of the sample and the basic results, while Part 5 directly tests the above questions.

Employee Stock Ownership Plans: Employee Compensation and Firm Value

Firms initiating broad-based employee share ownership plans often claim ESOPs increase productivity by improving employee incentives. Do they? The answer depends. Small ESOPs comprising less than 5% of shares, granted by firms with moderate employee size, increase the economic pie, benefitting both employees and shareholders. The effects are much weaker when there are too many employees to mitigate free-riding. Although some large ESOPs increase productivity and employee compensation, the average impacts are small, because they are often implemented for non-incentive purposes, such as conserving cash by substituting wages with employee shares or forming a worker-management alliance to thwart takeover bids.

The impact of privatization and employee share ownership on employee commitment and citizen behaviour

Based on a survey of employees in a large telecommunications company, this article examines the means through which privatization, accompanied by an Employee Share Ownership Plan (ESOP), impact on employee commitment and organizational citizenship behaviour. The findings show that although the ESOP has in some way moderated outcomes, privatization has had negative consequences for commitment. Despite this, 50 percent of respondents report an increased level of citizenship behaviour. In determining changes in employee commitment and behaviour, it was found that an important role is played by how employees perceive changes in conditions of employment, involvement in workplace decision-making and management—union collaboration.

Broad-Based Employee Share Ownership in Australian Listed Companies: Survey Report

This research report presents findings from a survey of employee share ownership practice in Australian listed companies. The research focused on broad-based employee share ownership plans (ESOPs): that is, plans that are open to a majority of employees within the company. The purpose of this study was fourfold: (1) to inform public policy debate on the issue of employee share ownership through providing, for the first time, a detailed account of employee share plan practice in Australian listed companies; (2) to examine how, if at all, the regulatory framework in taxation and corporate law is impacting upon the decision by companies to implement ESOPs and the design of their plans; (3) to obtain company views on the adequacy of the current regulatory framework; and (4) to test a range of hypotheses as to the determinants of ESOPs in the Australian context. Key findings as to company practice include: (1) approximately 57 percent of companies responding to the survey had at least one broad-based employee share ownership plan; (2) significantly more companies reported having a broad-based plan than a narrow-based plan: that is, a plan that is only open to executives; (3) the three most popular reasons for implementing a plan were 'showing employees the company values them'; 'sharing financial success with employees'; and 'aligning employee interests with shareholder interests'; (4) over three quarters of companies that have a broad-based plan have adopted their plan since 2000; (5) the most common type of broad-based ESOP was a plan structured to take advantage of the tax exemption in Division 13A of the Income Tax Assessment Act. Three structural characteristics were found to have a significant and positive association with the presence of an employee share ownership plan. These were the presence of a centralised human resource function; company growth over the preceding 12 months (measured by the number of employees); and the composition of the workforce (the proportion of full-time to part-time and casual employees). We also found that companies with broad-based ESOPs were significantly more likely to have structures for communicating directly with employees.