EMPLOYEE SHARE OWNERSHIP
Sharing rewards boosts organisational performance
Giving your employees a financial stake in the business does really pay. Companies with employee share ownership schemes appear to enjoy improved productivity and rapidly increasing share prices, according to new research unveiled at last month's annual compensation forum conference.
Richard Freeman, a renowned US academic, told delegates to the event, organised by Chartered Institute of Personnel and Development, that companies in which employees have some financial stake do in fact perform better.
Freeman, who is Professor of economics at Harvard Business School and visiting professor at the London School of Economics, has examined the UK evidence on the impact of the various tax-favoured employee share ownership initiatives and profit-related pay schemes.
Writing in People Management magazine ahead of the conference, he concluded: Each analysis has its own problems, but all of them show that giving workers a stake in the business is associated with better performance.
Varying impact on productivity
Freeman and his colleagues discovered that the results for companies with equity ownership plans involving ordinary employees differed from those operating executive-style schemes.
The productivity of these companies improved after they introduced their shared compensation system, although with differing results depending on the particular scheme.
What's more, the research shows that the introduction of approved profit-sharing schemes or approved company share option plans improved productivity by sizeable amounts . But neither the SAYE plan nor the now defunct PRP scheme had a significant effect on productivity .
Clear link to shares
So, why the difference? As Freeman explains:
The approved company share option schemes cover selected people — typically directors — who can affect business performance in response to stock option incentives. The approved profit-sharing scheme is based on profits, which are more susceptible than share prices to employee effort, but the reward is paid in shares, which promise more than cash or profit-related bonus. (People Management, 8 February 2001)
The two schemes that worked share a common feature: a clear link to shares , said Freeman
About the compensation forum conference
The CIPD's annual compensation conference is arguably the UK's premier gathering of reward professions, attracting over 200 delegates each year. It offers a showcase for some of the latest thinking and practices in reward management. The Institute prides itself on the quality of management speakers it attracts for its annual gathering. The line-up for this year's event was no exception — topping the bill was Mervyn King, deputy governor of the Bank of England.
Among other luminaries contributing to the debate were Peter Capelli, professor of management at The Wharton School and Hay's Vicky Wright. The conference also featured numerous case studies including: BP Amoco, FI Group, Oracle, and PepsiCo.
Want to know more?
Why not take a look at Professor Freeman's recent piece for People Management. This five-page article includes details of the various research studies which were the basis of his presentation to the CIPD event.
Title: Upping the stakes , by Richard Freeman, People Management, 8 February 2001.
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