Sharing Ownership via Employee Stock Ownership

Broad-based stock options, Employee ownership, Incentive compensation,

Shared Capitalism in the U.S. Economy? Prevalence, Characteristics, and Employee Views of Financial Participation in Enterprises

Between one-third and one-half of employees participate directly in company performance through profit sharing, gainsharing, employee ownership, or stock options. This flies in the face of concerns about the free rider problem and worker risk aversion in group incentives, and raises many questions about the effects on firms and workers. This paper lays out the major reasons we may see such "shared capitalism" plans, and reviews recent nationally representative surveys on the prevalence of these plans. We also introduce the NBER shared capitalism data, based on questions added to the 2002 and 2006 General Social Surveys (GSS) and more than 40,000 employee surveys from 14 companies with different combinations of shared capitalism plans. We find that while shared capitalism exists broadly throughout the economy, it is more likely in larger establishments. The free rider effect may be countered by the use of other policies to create productive teamwork and a cooperative culture: shared capitalism is positively linked to workplace decision-making, training, job security, teamwork, the ability to easily observe co-worker performance, and low levels of supervision. Also, more risk-averse employees avoid participating in several types of shared capitalism, but two-thirds of even the most risk-averse employees in these companies say they want shared capitalism as part of their pay package. The effects of these plans for both workers and firms are more fully explored in accompanying papers.

Who Has a Better Idea? Innovation, Shared Capitalism, and HR Policies

We investigate the relationship of "shared capitalist" compensation systems - profit/gainsharing, employee ownership, and stock options - to the culture for innovation and employees' ability and willingness to engage in innovative activity. Using a large dataset with over 25,000 employee surveys in over 200 worksites of a large multinational organization, we find that both shared capitalism compensation and high performance work policies contribute to these innovation outcomes. Owning company stock is the most consistently positive compensation variable in predicting both an innovation culture and willingness to engage in innovative activity. We also find that shared capitalism and high performance work policies have stronger effects in predicting an innovation culture when they are combined, and that the effects of shared capitalism and high performance work policies are partially, but not wholly, mediated through greater employee alignment with company strategy. The findings are consistent with agency theories predicting that the principal agent problem can be addressed by a combination of shared incentives and cooperative culture which encourages mutual monitoring and opportunities to share information.