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Home > Ownership Culture > Articles > Return on Ownership >
Research over the last 25 years is clear: employee ownership can motivate employees and improve company performance, but only under certain conditions. The challenge is to determine what those conditions are as accurately as possible. If employee motivation is part of the answer, then one approach to this challenge is through organizational psychology.
The psychological perspective assumes that the way people interpret ownership has a more direct impact on company performance than legal structures or vision statements do. Leaders therefore need reliable information about what ownership means to employees.
The word "ownership" has a myriad of meanings in the minds of employees. It is not the legal definitions but the "living definitions" of ownership that affect employee perceptions of the plan, of the company, and of their own roles. Since these perceptions are the raw material of group behavior, company leaders must work with and, where necessary, challenge employee interpretations of ownership.
Varied and contradictory ownership interpretations are reflected in responses to the Ownership Culture Survey™ (OCS), a survey-based approach to measuring the psychology of ownership. For example, the OCS asks employees what first comes to mind when they think of employee ownership. A sampling of the responses includes: "investment," "incentive," "teamwork," "bogus," "equality," "a good benefit," "employee involvement," and "what is it?"
The potential for disparate opinions is greatest in large companies, but the responses quoted in the paragraph above in fact are drawn from one of the smallest companies to take the OCS, with fewer than 50 employees.
Based on our work with employee ownership companies over the last 15 years, we have identified five major meanings of ownership for most people in the United States:
The findings reported here come from 4,110 employees at 17 employee-ownership companies that have completed the Ownership Culture Survey™. One part of the OCS asks respondents to rate the importance of each of the five aspects of ownership listed above. Respondents give each of these aspects a score from one to ten, where ten means that aspect is very important to them, and one means it is not at all important. Not surprisingly, respondents report that all five aspects are important--the average scores for all items are above 7.0 at a majority of OCS companies.
The most interesting and consistent feature of people's answers is that fairness is clearly rated as the most important, at 9.1 vs. 8.0 to 8.5 for other factors. In fact, no matter how we analyze the data, people overwhelmingly rank fairness as most important. That's true for managers and non-managers, new employees and long-term employees, men and women, young and old, high paid and lower paid. It even holds for people we identified as cynics.
One surprising pattern emerges over and over in the data: middle managers and supervisors tend to rate these meanings of ownership as less important than other employees do, including senior managers. For most people, middle managers are the "face" of the company, and an ownership culture will be almost impossible without their active support.
Many companies implicitly assume that ownership is primarily a financial incentive that aligns employees' interests with company interests. To a great extent this is true, and it is this financial alignment of interests that we term "the incentive effect."
The incentive effect reflects the capacity of employee ownership to give employees a monetary reason to perform their jobs well. It plays an essential role in motivating employees because it gives each employee an individual profit motive to promote company success and its stock value.
The incentive effect is also crucial for a second reason. Previous research indicates that employees will not feel psychological ownership until they trust that they will share in the financial benefits of ownership--i.e., until they feel the incentive effect.
The incentive effect is likely to be strongest in companies that offer short- or medium-term rewards, such as stock-options, gainsharing, or profit sharing. In some cases, however, these incentives can actually be too powerful--the short-term incentive can overwhelm concern for the long-term viability of the company, resulting in a "casino mentality" where employees' primary loyalty is to their own short-term financial well-being. The most powerful formula for success seems to involve a combination of short-term incentives, long-term incentives (such as an ESOP) and a culture that involves people beyond the purely financial level.
One final point to draw from this data is that the financial aspect of ownership is not the top priority identified by most respondents. The other aspects of ownership, which we call "the culture effect," are explored next.
While the incentive effect can be simulated by non-ownership compensation tools, the culture effect is unique to employee ownership. It is a deep connection to the company, a relationship based on more than money. Ownership can give employees a reason to belong to the company. The culture effect is the result of psychological ownership, and only exists in companies that actively nurture a sense of ownership in the work force.
We have suggested elsewhere that an ownership culture has multiple dimensions, including access to information, a degree of input into decisions, a sense of organizational fairness, and an entrepreneurial outlook. Each of these dimensions entails a balance between the rights granted to employees and the responsibilities they accept.
Why should companies bother with the culture effect? The incentive effect is necessary, but the real power of employee ownership results from the culture effect. Studies indicate that by itself ownership has an uncertain impact on company performance. An ethic of involvement in the company is needed to change behaviors. This conclusion is also consistent with the data reported here about the secondary importance of the financial aspect of ownership.
The data suggests some steps leaders may wish to consider in their own companies.
Middle level managers often need substantial support before they change their perceptions of ownership. Companies that have not yet started their transition to employee ownership may want to involve supervisors and middle managers in the design process in order to ensure that they support the final product.
Ownership can be a "glue" to tie various company programs (bonuses, safety initiatives, work redesign, hiring procedures, benefit packages, and communications programs) together into a coherent whole.
Find a systematic and psychologically safe way for people to express what ownership means to them. This will allow you to tailor various features of the ownership plan to the particular needs of your work force and to track changes over time. If you make changes based on this input, tell people that the change was made because they said they wanted it. Linking the change to their input can be just as important as the change itself.
This article is adapted and updated from "Ownership and Motivation," The Ownership Culture Report, Vol. 1, No. 4 (Cambridge, MA: Ownership Associates, Winter 2001).
Copyright © 2002 by The National Center for Employee Ownership (NCEO) (phone 510/208-1300; email nceo@nceo.org; WWW http://www.nceo.org/). All rights reserved.
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