'By increasing their financial participation, this would directly increase their motivation': researcher explains link between ESOPS and well-being, productivity
New research that examined Glassdoor employee reviews of their employers has found that employee stock ownership plans (also known as ESOPs) lead to improved engagement, participation and wellbeing among workers.
The paper, “Sharing Is Caring: Employee Stock Ownership Plans and Employee WellBeing in U.S. Manufacturing” analyzed almost 200,000 employee reviews on Glassdoor in the U.S. manufacturing industry, which is the second largest group of employers that offer ESOPs, after finance.
The findings show a positive correlation between employees who have stock interest in a company, and their ratings of job satisfaction on Glassdoor—specifically, well-being and workplace culture.
“ESOP firms are likely to provide packages of compensation, workplace culture, workplace safety, and other amenities that... more closely align with workers' preferences than that which conventional firms can offer,” the authors of the paper reported.
Plus, ESOP firms demonstrate higher levels of cooperation among employees of varying ranks and management, leading to higher levels of productivity due to better working conditions.
Employee ownership contributes to employee motivation, well-being
Co-author of the paper, Adrianto Adrianto, PhD candidate at the Carlson School of Management at the University of Minnesota, explains that this boost in satisfaction stems from the increased rights associated with employee ownership.
"They have three major rights pertaining to the ownership,” he says: profits, participation in decision-making, and access to financial and operational information.
These rights foster a sense of psychological ownership which, in turn, enhances employee motivation.
“Because they have participation in the decision-making process, the resources that can be allocated to employee amenities can be improved,” says Adrianto, “and the combination of these amenities can also be customized to what employees prefer.”
This increased job satisfaction is even more pronounced when employee ownership plans are established through a collective bargaining process, he says, with the ability to tailor the specifics of the ownership plan to employee preferences a key factor.
In these cases, employee satisfaction is significantly higher than in conventional firms, with a satisfaction premium of 70% above the average, the study showed.
"Through collective bargaining... employees can have a voice in what kind of employee ownership plan that they want,” says Adrianto. “The size of stocks that they receive, when they receive it, and the mechanism, how they receive it.”
Decision-making power and psychological ownership
The decision-making power that comes with ESOPs is a key factor in what drives the increased job satisfaction, Adrianto says, as it contributes to a feeling of “attachment” to the organization, also referred to as “psychological ownership”.
Psychological ownership does not need to be tied to financial gain, he adds.
“Psychological ownership is a feeling of attachment to the organization... regardless of legal ownership," he says. “This ownership increases commitment, increases loyalty to the organization, increases job satisfaction."
He adds that by fostering employee participation in decision-making and giving them a stronger voice in company operations, ESOPs help cultivate this sense of psychological ownership.
“They are the owner of the of the firm. They have a higher or better voice through participation,” Adrianto says. “This higher participation, we think, would influence their voice in deciding what kind of practices that should be implemented in the workplace, which would affect their day-to-day activities, and that will translate to higher employee well-being and employee satisfaction.”
Work-life balance and culture drive satisfaction, not wages
Interestingly, the study reveals that the increased satisfaction in ESOP firms is not related to compensation or wage. Rather, the Glassdoor data shows that the greatest satisfaction gains are tied to improvements in workplace culture and work-life balance, with Adrianto stating, “We actually find zero effects of employee ownership on compensation.”
In addition to the legal ownership provided by ESOPs, Adrianto highlights the importance of psychological ownership, a sense of attachment and loyalty to the company, which further enhances employee commitment and motivation.
However, the financial stake that ESOPs offer employees do play an important role in increasing their motivation and aligning their goals with the company's success, says Adrianto.
By owning stock in the firm, employees benefit directly from the company's performance; this effect can also reduce the common problem of conflict of objectives between management and employees.
“By increasing their financial participation, this would directly increase their motivation, which would translate to higher productivity and well-being,” he says.
“You want employees to have psychological ownership. You want employees to have attachment to the organization, because that means that you're identifying more to the organization, so you want to put more effort, have higher motivation to work, and so on.”
The future of ESOP plans in Canada
In May of this year, federal Minister of Finance Chrystia Freeland’s 2024 budget included tax incentives for successions to employee ownership—an announcement applauded by proponents of the bill as “smart business”.
“With every sale to an Employee Ownership Trust, we’re increasing the likelihood that companies stay Canadian-owned, remain resilient in the face of economic turbulence, and provide meaningful wealth for working Canadians,” said Tiara Letourneau, Steering Committee member of the Canadian Employee Ownership Coalition.
The coalition and other stakeholders have been advocating for an employee ownership policy in Canada similar to those in the UK and the U.S., an end wreached on June 21 this year when the federal government passed two bills establishing an employee ownership trust structure.
“Over the next decade, 76% of Canadian business owners intend to retire, and the vast majority have no succession plan in place,” a CEOC press release stated.
“The creation of an Employee Ownership Trust and accompanying tax incentive will, for the first time, provide business owners with a viable alternative to selling their businesses to international private equity firms or competitors.”
