A stake in ownership can bolster worker productivity

The notion that employees are tools that merely deliver the bottom line has been dispelled in the modern workplace. Subscribing to a model that says that the company is only owned by the people who finance it is no longer relevant.

This is primarily driven by the advent of employee-share ownership which has taken the forefront in some companies. The employee-share ownership model stands to improve the productivity levels in many a workplace.

Employee-share ownership allows a form of participation for employees as they have a share (above all, stocks) in their company. The standard practice is that people with a vote in most organisations are the top management and the shareholders. In essence, this scenario is a bit skewed and workers need to gain equity as they are essential assets of the company.

Employee ownership is a form of employee financial participation that confers on employees the right to share in the wealth of the company and, in theory at least, the right to exercise some degree of control over company affairs.

Employee ownership is identified as a means of enhancing enterprise performance through promoting worker productivity. The theoretical basis for this rationale is generally located in agency theory. In the corporate governance context, agency theory has highlighted the “corporate governance problem” arising out of the separation between “ownership” and “control’.

Shareholders and managers may have divergent interests and shareholders may find it difficult and expensive to monitor management, particularly where they hold small stakes in many different firms. Employee ownership is one such incentive mechanism by which to reduce costs to the company through more closely aligning the interests of employees with those of other stakeholders in the company.

There is a range of industrial relations or human resource management rationales for employee-share ownership. Employee ownership is viewed by some as a potential means of enhancing industrial democracy or of bringing the employee into corporate governance. It is a means of increasing employee understanding of how the company for which they work operates and, more broadly, of “absorbing the principles on which the economy of the country is run”. Therefore, it is seen as a means of facilitating labour-management cooperation through breaking down the “them” and “us” mentality. It can substitute for salary or wages when business is not performing well.

Five key factors or lessons that can be learned to ensure optimal implementation of employee-share ownership:

Lesson one: For any employee owned company to reach its potential, it is important to have everyone at the company, regardless of position or rank, committed to creating an ownership culture among employee’s owners. An ownership culture is formed in a participatory, empowered environment, where employee input is based on trust and knowledge.

Lesson two: Successful employee owned companies have strong commitment.

Lesson three: Whether a business is employee owned, singularly owned, publicly owned or owned by a group employee ownership does not alter an external environment.

Lesson four: Creating employee ownership in a distress company through lower pay, owner benefits and other so called “wage concession” in exchange for ownership may not work out.

Lesson five: Research has demonstrated that more often than not, employee ownership has succeeded in privately owned companies with less than 1000 employees.

Employee ownership has not yet established a track record of success by large, public employers that are majority-owned by the employees. An employee share ownership programme promotes a culture of ownership. When employees invest in their company, they often find renewed purpose in the work at hand and have a greater incentive to ensure their organisation’s overall success. An employee share ownership programme can also inspire a sense of pride among employees.

By: Bongani Coka – CEO of Productivity SA