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The Employee Ownership Update

Loren Rodgers

May 16, 2011

New Research on the Impact of Employee Ownership

At our 2011 annual conference on employee ownership in April, Richard Freeman of Harvard University and Joseph Blasi of Rutgers presented new research on employee stock plans done with their colleague Doug Kruse of Rutgers. The new research draws on data from the Great Place to Work Institute—information that has never before been made available to independent researchers—and represents the largest study ever on the connections among various forms of shared capitalism, organizational culture, and company performance. The data is from companies that applied to Fortune magazine's list of the "100 Best Companies to Work for in America" from 2006 to 2008, and it covers more than 300,000 employee surveys from all 1,300 corporations that applied. Here are four highlights:

Applicant companies are more likely than average to have some form of employee ownership. Namely, 15% of applicants have ESOPs, 10% are majority employee-owned, and 16% give options to most employees.
The amount of shared capitalism in a company (i.e., different types of employee ownership and profit sharing) is associated with a significantly higher Trust Index (the Great Place to Work Institute's principal measure of credibility), respect, fairness, pride, and camaraderie within each company's workforce.
The combination of shared capitalism and the Trust Index is associated with significantly lower turnover in a company, and this is true when actual turnover is reported by the company and when expected turnover is reported by the worker.
As shared capitalism and the Trust Index go up together, the firm is more valuable to shareholders, as measured by one of the most accepted measures of shareholder value used by researchers, Tobin's q (the market value of the firm relative to the book value of its historical assets).

These and other conclusions of the study support the findings of an earlier 10-year study summarized in their book Shared Capitalism at Work, published by the University of Chicago Press. The book is just now being released in paperback.

Employee Ownership in Europe

The European Federation of Employee Share Ownership released its most recent report on the state of employee ownership in the European Union, the Economic Survey of Employee Ownership in European Countries in 2010. Some highlights include that the number of employee owners is 31% of the work force in large European countries, and that 54% of companies offer share plans and 64% offer stock option plans. A number of countries saw an increase in the number of employee owners, with France, for example, increasing from 2.8 million employee owners in 2007 to 3.6 million in 2010, while the number of employee owners decreased in three (Belgium, Ireland, and the Netherlands).

South Africa to Encourage Employee Ownership More

South Africa's current Black Economic Empowerment program provides favored government contracting to companies that meet rules for expanding ownership to blacks. The program has been criticized as too easily favoring political favorites or people who already have substantial wealth because it does not emphasize broad distribution of wealth but only that one or more blacks own a sufficient stake in the company. Under new rules, the point system for awarding contracts will be changed to put more emphasis on broad-based employee ownership plans. Because so many businesses deal with the government in one way or another, the program has broad reach in the South African economy.

Executive Compensation at Publix Super Markets

Writing in the Orlando Sentinel, Beth Kassab examines why Publix Super Markets, the nation's largest ESOP company, pays its CEO Ed Crenshaw less than CEOs at other companies. She notes, "Publix wears its low pay packages like a badge of honor" and cites a recent statement from its board of directors, stating that it is company policy that "compensation should be set at responsible levels for all employees ... and be consistent with the company's constant focus on controlling costs in its low margin business."

Mark Lomele Elected Chair of ESOP Association

Mark R. Lomele, senior vice president and chief financial officer of Recology, located in San Francisco, California, has been elected to serve as the chair of the ESOP Association, a national trade association for companies with ESOPs. The Recology operating companies provide collection, recycling, and disposal services to homes and businesses in California and Oregon.

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