Ownership Culture
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Ownership Culture
Compelling research and decades of experience show that employee ownership is a powerful tool to improve corporate performance but only when paired with what we call an “ownership culture.”
There are six essential elements to an ownership culture:
1. Provide a financially meaningful ownership stake, enough to be an important part of employee financial security.
2. Provide ownership education that teaches people how the company makes money and their role in making that happen.
3. Share performance data about how the company is doing overall and how each work group contributes to that,
4. Train people in business literacy so they understand the numbers the company shares.
5. Share profits through bonuses, profit sharing or other tools.
6. Build employee engagement not just by permitting employees to contribute ideas and information, but also by making those practices part of the company’s culture through feedback opportunities, devolution of authority, and other structures.
In the largest and most significant study to date of the performance of ESOPs in closely held companies, in 2000 Douglas Kruse and Joseph Blasi of Rutgers University found that ESOPs increase sales, employment, and sales/employee by about 2.3% to 2.4% per year over what would have been expected absent an ESOP. ESOP companies are also somewhat more likely to still be in business several years later. This is despite (or perhaps because of) the fact that ESOP companies are substantially more likely than comparable companies to offer other retirement benefit plans along with their ESOP.
Kruse and Blasi obtained files from Dun and Bradstreet on ESOP companies that had adopted plans between 1988 and 1994. They then matched these companies to non-ESOP companies that were comparable in size, industry, and region. They then looked for which of these companies had sales and employment data available for a period three years before the plan’s start and three years after. The sales and employment growth data were then compared for each year for each paired company. They also checked the companies’ filings with the Department of Labor to determine which of the companies had other retirement-oriented benefit plans. Finally, they looked to see what percentage of the companies remained in business in the 1995 through 1997 period.
The results showed that ESOP companies perform better in the post-ESOP period than their pre-ESOP performance would have predicted.
The CCEO is a joint project of the National Center for Employee Ownership and the Beyster Institute at UC San Diego’s Rady School of Management.