Employee share ownership: the research

The following is a list of research papers – commended by the Centre – into the benefits of employee share ownership for businesses and employees.

U.S. General Accounting Office (GAO/PEMD-88-1), Employee Stock Ownership Plans: Effects on Corporate Performance (October 29 1987)

The General Accounting Office (GAO) concluded that companies which embrace all-employee share ownership plans show more improvement in productivity where their employee ownership initiative is accompanied by employee involvement in corporate decision-making. Employee share ownership in isolation from general employee involvement policies may not maximise the benefit to the business. Minimally, the study found that the productivity of companies that have introduced employee share ownership was at least comparable with the productivity of companies that have not introduced employee share ownership.

Corey Rosen and Michael Quarrey, ‘How well is employee ownership working?’, Harvard Business Review 65 (September–October 1987), 126–30

The studies performed earlier over 1986 and 1987 by Quarrey and Rosen provide more substantial support for the productivity benefits of employee share ownership. This key study, which is recognised to have been tightly controlled, focused on 45 companies in the USA and established their sales growth five years before the introduction of employee share ownership and five years after the introduction of employee share ownership. The conclusion was that the sales growth in comparison with the competition was an additional 1.9 percent before the introduction of employee share ownership but 5.3 percent after the introduction of employee share ownership. This paper, as with the GAO study, emphasised general employee participation in corporate decision-making as a major factor in the success of the employee share ownership initiative.

Gorm Winther, Employee Ownership: A Comparative Analysis of Growth Performance (Aalborg, 1995)

A study performed by Gorm Winther in 1987, also as a before and after analysis on employee share ownership, focused on 25 companies in New York state and 28 companies in the state of Washington. It found that any positive result from employee share ownership was dependent on wider employee participation generally.

Hamid Mehran, Unleashing the Power of Employee Ownership: A Research Report, Hewitt Associates (July 1998)

The study, performed by Professor Hamid Mehran of Northwestern University’s J.L. Kellogg Graduate School of Management for Hewitt Associates in 1998, is highly regarded for the size of the sample of 382 publicly quoted companies all of which had introduced employee ownership plans. In addition, the measurement of economic parameters was tightly controlled. The study, which refers to the companies as ESOP companies, considered the financial returns of the companies for two years before implementation and for four years after implementation and compared each company to industry norm Return on Assets positions for both periods.

The performance and productivity conclusions of the study were:

• For the 303 ESOP companies that survived the full four year ESOP period ROA was 14 percent higher than the comparator group.
• For the 382 ESOP companies as a group ROA was 6.9 percent higher in the four year ESOP period.
• For the 382 ESOP companies the Total Shareholder Return increased by 12 percent compared with the peer group over the ESOP period.

Interestingly, the analysis showed that for over 60 percent of the companies there was an increase in the share price in the two day period following the introduction of the ESOP. The average increase for all companies in the group was 1.6 percent. These statistics indicate a positive response from the market to the introduction of an ESOP.

On attitudinal responses of executives to matters of ownership culture the study showed:

• 82 percent of executives reported that employee share ownership increased corporate performance.
• 18 percent of executives reported that employee share ownership improved employee behaviour.
• 85 percent of companies reported increased access to company information for employees, including financial information, corporate strategies and customer expectations.

Martin J. Conyon and Richard B. Freeman, ‘Shared Modes of Compensation and Firm Performance’, in Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980–2000, ed. By David Card, Richard Blundell and Richard B. Freeman (Chicago, 2004), pp. 109–146

In the U.K. the work of Professor Richard Freeman of Harvard University and the London School of Economics (LSE) and Martin Conyon of Wharton School, University of Pennsylvania investigated the consequences of introducing employee share ownership in approximately 300 companies, again a substantial sample. The study analysed the productivity of UK companies by measuring their added value before and after the introduction of an HMRC tax-approved all-employee free share plan, either in the form of the Profit-Sharing Employee Share Scheme or subsequently the free shares module of the Share Incentive Plan. Added value equates in general terms to gross profit, which to labour economists is accepted as a fairly accurate indicator of labour productivity. The study found a 17 percent increase in added value following the introduction of the free shares arrangement.

Alex Bryson and John Forth, Computershare Share Plan Survey: Global Report 2014 (July 2014)

Computershare’s 2014 survey, conducted by Professor Alex Bryson of LSE and the National Institute of Economic and Social Research (NIESR) and John Forth of NIESR, asked almost 4,000 of the company’s employees what employee share ownership meant to them. It found there was a widespread perception that share plans encourage productivity-enhancing behaviour. Those who participated in one of Computershare’s share plans were more likely to work beyond their contracted hours and had lower levels of absenteeism. Plan members thought their share plan had a causal effect on their own motivation and other employees. The survey found that plan members were more likely to be satisfied with their jobs, feel loyal to the company, share its values and view it as a good place to work.