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Motivating Employee-Owners in ESOP Firms: Human Resource Policies and Company Performance

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Listed:
  • Douglas Kruse
  • Richard Freeman
  • Joseph Blasi
  • Robert Buchele
  • Adria Scharf
  • Loren Rodgers
  • Chris Mackin

Abstract

What enables some employee ownership firms to overcome the free rider problem and motivate employees to improve performance? This study analyzes the role of human resource policies in the performance of employee ownership companies, using employee survey data from 14 companies and a national sample of employee-owners. Between-firm comparisons of 11 ESOP firms show that an index of human resource policies, nominally controlled by management, is positively related to employee reports of co-worker performance and other good workplace outcomes (including perceptions of fairness, good supervision, and worker input and influence). Within-firm comparisons in three ESOP firms, and exploratory results from a national survey, show that employee-owners who participate in employee involvement committees are more likely to exert peer pressure on shirking co-workers. We conclude that an understanding of how and when employee ownership works successfully requires a three-pronged analysis of: 1) the incentives that ownership gives; 2) the participative mechanisms available to workers to act on those incentives; and 3) the corporate culture that battles against tendencies to free ride.

Suggested Citation

  • Douglas Kruse & Richard Freeman & Joseph Blasi & Robert Buchele & Adria Scharf & Loren Rodgers & Chris Mackin, 2003. "Motivating Employee-Owners in ESOP Firms: Human Resource Policies and Company Performance," NBER Working Papers 10177, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:10177
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    References listed on IDEAS

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    1. Martin Conyon & Richard B. Freeman, 2004. "Shared Modes of Compensation and Firm Performance U.K. Evidence," NBER Chapters, in: Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980–2000, pages 109-146, National Bureau of Economic Research, Inc.
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    3. Douglas L. Kruse, 1993. "Profit Sharing: Does It Make a Difference?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number ps, November.
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    Cited by:

    1. Richard Fabling & Arthur Grimes, 2009. "The "suite" smell of success: complementary personnel practices and firm performance," Reserve Bank of New Zealand Discussion Paper Series DP2009/13, Reserve Bank of New Zealand.
    2. Maxwell Sandada & Kamunyaru Batanai Basil & Asphat Muposhi, 2016. "The Influence of Employee Share Ownership Schemes on Firm Performance: the Case of Zimbabwean Firms," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 12(2), pages 37-50, April.
    3. Fathi Fakhfakh & Virginie Pérotin & MÓnica Gago, 2012. "Productivity, Capital, and Labor in Labor-Managed and Conventional Firms: An Investigation on French Data," ILR Review, Cornell University, ILR School, vol. 65(4), pages 847-879, October.
    4. I Putu Sugiartha Sanjaya, 2012. "The Employee Stock Ownership Program Phenomena: Evidence From Indonesia," Review of Business and Finance Studies, The Institute for Business and Finance Research, vol. 3(2), pages 9-20.
    5. Fakhfakh F. & Perotin V. & Gago M., 2009. "Productivity, Capital and Labor in Labor-Managed and Conventional Firms," Working Papers ERMES 0910, ERMES, University Paris 2.
    6. Silvia Sacchetti & Ermanno C. Tortia, 2012. "A �Human Growth� Perspective on Organizational Resources and Firm Performance," Department of Economics Working Papers 1209, Department of Economics, University of Trento, Italia.
    7. Jed Devaro & Fidan Ana Kurtulus, 2011. "What types of organizations benefit from teams, and how do they benefit?," UMASS Amherst Economics Working Papers 2011-16, University of Massachusetts Amherst, Department of Economics.
    8. Le Grand, Julian & Roberts, Jonathan, 2018. "The public service mutual: theories of motivational advantage," LSE Research Online Documents on Economics 84380, London School of Economics and Political Science, LSE Library.
    9. MAHMOOD Athar, 2020. "Employee Stock Option Plans: A Meta-Analysis (Understanding Impact Of Esops Through Literature)," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 15(1), pages 100-114, April.
    10. Dermot McCarthy & Eoin Reeves & Tom Turner, 2010. "The impact of privatization and employee share ownership on employee commitment and citizen behaviour," Economic and Industrial Democracy, Department of Economic History, Uppsala University, Sweden, vol. 31(3), pages 307-326, August.
    11. Richard Fabling & Arthur Grimes & David C. Maré, 2012. "Performance Pay Systems and the Gender Wage Gap," Working Papers 12_13, Motu Economic and Public Policy Research.
    12. Erika Harden & Douglas L. Kruse & Joseph R. Blasi, 2008. "Who Has a Better Idea? Innovation, Shared Capitalism, and HR Policies," NBER Working Papers 14234, National Bureau of Economic Research, Inc.
    13. Jose DiBella & Nigel Forrest & Sarah Burch & Jennifer Rao‐Williams & Scott Morton Ninomiya & Verena Hermelingmeier & Kyra Chisholm, 2023. "Exploring the potential of SMEs to build individual, organizational, and community resilience through sustainability‐oriented business practices," Business Strategy and the Environment, Wiley Blackwell, vol. 32(1), pages 721-735, January.
    14. Maxwell Sandada & Kamunyaru Batanai Basil & Asphat Muposhi, 2016. "The Influence of Employee Share Ownership Schemes on Firm Performance: the Case of Zimbabwean Firms," EuroEconomica, Danubius University of Galati, issue 2(12), pages 37-50, April.
    15. Fabling, Richard & Grimes, Arthur, 2007. "HR Practices and Firm Performance: What Matters and Who Does It?," Occasional Papers 07/2, Ministry of Economic Development, New Zealand.
    16. Daniel J. Benjamin, 2015. "A Theory of Fairness in Labour Markets," The Japanese Economic Review, Japanese Economic Association, vol. 66(2), pages 182-225, June.

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    More about this item

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J54 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Producer Cooperatives; Labor Managed Firms

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