Words: Dr. Eric Kaarsemaker, Rutgers University’s School of Management
Equity ownership has become increasingly popular as an employee benefit over recent years, but the effects are not always clear. Dr. Eric Kaarsemaker introduces his white paper on how companies can enjoy sustained and positive effects from their equity schemes.
Employee share ownership is an exciting subject, and one that holds many different perspectives to analyse. As a fellow at Rutgers University’s School of Management and Labour Relations, I’ve always been interested in studying the HR side of equity ownership, as this is an area where little research has been carried out.
In my recent white paper, entitled The Employee Equity Life Cycle: Getting Maximum Results from your Workforce, I focused on HR as well as ownership and strategy in relation to employee stock ownership. Companies tend to score high or low on each of these dimensions, but need to score high on all three to see sustainable benefits from their equity schemes.
Stage 1: The ownership dimension
In the first part of the paper, I look at what employee equity is. It may sound obvious, but there are many variations and they each have very different effects on a company. What’s more, there is a difference between symbolic shares and company ownership. For example, bonuses paid in stock options will not lead to ownership, whereas holding stock directly will.
How a company’s CEO and senior management feel about employee stock ownership likewise makes a difference. If a scheme is introduced because of strong managerial beliefs in its power and business logic, the sense of ownership will be stronger among employees. If it’s introduced because of a management fad, companies won’t see the same benefits.
Stage 2: The HR Dimension
The second part comprises the HR perspective on employee share ownership. For stock ownership to work as an HR instrument, employees need to feel like real owners, and HR practices need to work with and support schemes, not contradict them.
Ownership fundamentally means having a say; employees should therefore have some control over the equity scheme itself. From a job perspective, employee owners should also have a say over their working environment. Research has shown that employees are not interested in directing the company; they only want to be able to exert some influence over their own environment.
Employees also need to be informed; this doesn’t mean high-level information, but simply knowing how well the company is doing will suffice. Information sharing enables real participation and helps employees to understand the results of their actions, and therefore become more motivated.
Employee stock ownership can help to make the most of your workforce.
Stage 3: The Strategy Dimension
Yet, this is still all very static. The final part of the paper refers to embedding the equity scheme in the company’s strategic management process.
Employee stock ownership can help to make the most of your workforce. If companies want to create stronger, more dynamic systems within the business, employees need to be part of its strategic management processes. It should be clear to employees where the business is headed. This does not necessarily mean employees meeting with the company director, but issues can be discussed as a team with department managers at lower levels. Employees then officially become involved in the decision-making process – there is a conversation. Once objectives and goals are set, employees can then help decide on relevant and fair metrics to measure their success.
Alongside having a say and information sharing, it’s vital to foster a working environment where metrics, performance and strategy can be discussed. Strategic success is directly linked with financial rewards through profit sharing and increased stock value, which in turn motivates employees and keeps momentum going.
Overall, it’s a very nuanced story. Of course, you can engage your employees without involving them in strategy, but you can better engage them in a more sustainable way by including them. Sustained feelings of ownership among employees will then gradually develop into a changed organisational culture.
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