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Home > Reference Desk > Research & Statistics >
Research on employee ownership has moved from what Joseph Blasi at Rutgers once called "advanced storytelling" to sophisticated statistical analysis. As a result, we now have a pretty clear picture about a number of aspects of the subject.
This Web site already contains a summary of the research on this issue you can consult to see what the major studies have found, as well as in more detail in our publication "Employee Ownership and Corporate Performance." Basically, they show that when employee ownership is combined with a "high involvement" management style, companies perform a great deal better than they would have been expected to perform otherwise. Employee ownership, on its own, seems to have, at best, a small positive impact, not unlike the findings for high-involvement management absent employee ownership or, perhaps, some other substantial form of gainsharing. This finding was first reported by Quarrey and Rosen (1987) and later by the U.S. General Accounting Office (1987), Gorm Winther et al. (1989), and Peter Kardas et al., each of whom used a "before and after" approach to measure the impact of employee ownership. The findings were confirms in numerous studies, several of which are described in the NCEO material referenced above. An intensive 2003 study for the National Bureau of Economic Research came to the same conclusion (the results can be found at http://www.ownershipassociates.com/motivate_eo_2.shtm). A thorough academic review of the research on employee ownership research can be found in Eric Kaarsemaker's dissertation, "Employee Ownership and Human Resource Management" (available at http://eric.kaarsemaker.eu/). Although there is a special emphasis on the Netherlands, there is a comprehensive discussion of all of the academic research on this topic in the U.S. and elsewhere. A shorter review focusing on ESOPs through 2006 can be found in Stephen Freeman's paper at http://repository.upenn.edu/od_working_papers/2/.
For this interactive effect between ownership and employee participation to work, the employee ownership must be significant, as measured by how much an employee gets in stock contributions each year. While there is no precise dividing line to measure what "significance" is, it seems clear that contributions under 3%-4% per year are not going to get the employee's attention unless the stock value is increasing in spectacular fashion. Similarly, there is no dividing line to separate "high involvement" from "low involvement" companies, but the high involvement companies would be likely to employ such practices as self-managing teams, open book management, and cross-functional teams. The more ownership and the more involvement, the better the results tend to be.
Finally, there have been a number of studies looking at the impact of employee ownership on stock price. A study through the 1990s by American Capital Strategies tracking of the stock price performance of publicly traded employee ownership companies with more than 10% employee ownership showed that these companies consistently outperformed the broader market indexes. Previous studies by a variety of academics looked at the short-term impact (two-day price movements) associated with the announcement of an employee ownership plan. Studies done in the late 1980s had mixed results; where the ESOP was announced in the context of a takeover effort, the impact was negative; otherwise, it was mostly positive. The most recent study as of this writing was a 2006 study by Robert Stretcher, Steve Henry, and Joseph Kavanaugh (the study was in submission as of this writing) looking at 196 publicly traded U.S. ESOP companies during the years 1998 through 2004. It found very positive post-ESOP results. But other studies prior to that came to different conclusions.
The research on performance has number of limits, however. Three of the most important studies (Quarrey and Rosen, 1987, Winther in 1989, and Kardas et al., 1993) were based mostly on closely held companies and looked only at employment and sales growth. Studies of public companies looked at several measures of financial performance, such as return on assets, and found mixed results for employee ownership. None of the public company studies, however, analyzes the interactive impact of ownership and high involvement management that proved so crucial in the other studies. Moreover, ESOPs in public companies typically own relatively small percentages (5% to 15% typically) whereas private company ESOPs tend to be at least 30%, and often more than 50%, owned by employees. Private company data is not generally available for other than sales and employment numbers; public companies provide much better data, but their plans play a much smaller role, both financially and organizationally, than do ESOPs in private companies.
In the broad-based stock option plan area, we know less. A 2000 study by Douglas Kruse, Joseph Blasi, Jim Sesil, and Maya Krumova used NCEO stock option plan survey data to show that stock option companies have 17% greater productivity in a three-year post plan period than would have been expected based on pre-plan performance relative to their industry. Their return on assets was about 2% better. Their total shareholder return was about the same, however, as the dilution from the options may have been just offset by the improvement in performance. Kruse, Blasi, Sesil, and Krumova have done some follow-up studies, described in our paper on employee ownership and corporate performance, that confirm these general results. Other scholars have not looked at this issue yet, however (at least as of this 2007 writing).
There are a number of case studies, mostly from the early 1980s, that survey employees about their attitudes toward ownership. The results are mostly positive, although there do not appear to be dramatic changes in how employees feel about their work. A 1983-1986 NCEO study detailed in Rosen, Klein, and Young, Employee Ownership in America (Lexington Books, 1986), included a 140-item survey of 3700 employees in 45 companies. It is by far the most comprehensive study to date. It found that employees' response to being owners is largely a function of three factors: how much stock is contributed to their plan each year, how much involvement they have in decision-making at the job level, and how often the company communicates with them about the plan and the company. Other factors, such as the size of the company, unionization, line of business, demographics of the work force, percentage of the company owned by employees, age of the plan, voting rights, etc., were not related to employee attitudes, just as they were not related to corporate performance.
Given the comprehensive nature of the NCEO study, there have not been any significant new studies of employee attitudes toward ownership, although, as will be noted below, there are some other areas to investigate.
Basic data on ESOPs has been relatively easy to gather, and we have a fairly good picture of who adopts ESOPs and why. The data are always based on numbers at least two years old, however, as this is when they are reported by the Department of Labor and made public. Detailed surveys on companies in Michigan (1990) and Ohio (1994) provide good data on characteristics of ESOP companies, such as whether they pass through voting, if they have employees on boards, how much their plan owns, how much is put into the plan each year, what kinds of participation plans they have, etc. A 1991 study by Blasi and Kruse (The New Owners, Harper-Collins) detailed employee ownership through all kinds of ownership plans in public companies. A 1987 GAO study looked at plan operational characteristics, such as voting rights, board representation, percentage ownership, leveraging features, industry, etc.
Lists of ESOP companies can be obtained from Judy Diamond Associates for approximately $700. This provides data on all companies who have indicated they have an ESOP on their Form 5500 filing with the Department of Labor. For various reasons, not all companies with ESOPs will show up on this list, but most will. The data include the company name, address, plan date, value of total plan assets, value of employer securities, and the number of plan participants. You can also determine if companies have other retirement plans and how they are funded. For information, go to www.freeerisa.com. You can also use that site to look up the filings of individual companies one by one to see if they have an ESOP.
The NCEO also maintains lists of ESOP companies. These are not as comprehensive (or expensive), but contain somewhat more data.
Data on companies with broad-based individual equity plans is much harder to obtain. These companies do not have to file reports about their plans in any systematic way, other than for public company disclosures about awards for key executives. Some companies include information on their web site, generally in the benefits area, or, if they are publicly traded, in their annual reports of 10-K securities filings (available on line of through their web sites). There are, however, no reliable lists of companies with broad based plans available for purchase.
The major work here has been by the NCEO in a 1991 study that looked at the consequences of employee voting rights in majority ESOP companies, finding that these democratic companies' management structures were not dramatically changed.
One common contention about employee ownership, particularly among free market economists, is that employees will only get ownership in place of something else. While there is strong evidence that employees rarely explicitly give up wages or benefits for employee ownership, it could be that their ownership plans are in place of something they would have received otherwise. For details of what we know about the impact of employee ownership on employee financial well being, go to http://www.nceo.org/library/eo_stat.html. There are also some limited survey data on this issue available in the periodic General Social Survey, detailed at http://www.nceo.org/library/widespread.html.
Overall, the data show that ESOPs significantly add wealth to employees, albeit with substantial variations from one company to another. They also show that ESOP participants are more likely to have other retirement plans than comparable non-ESOP participants. In the equity plan area, the data are less comprehensive, but do suggest that wages are rarely sacrificed and that the plans provide meaningful levels of awards for most participants, equal over several years to one year's pay or more.
While the studies on corporate performance have left most researchers fairly convinced that employee ownership and employee participation result in improved performance, we do not know a great deal about the texture of these results. What kinds of employee involvement work best? How durable are the changes? Do they plateau over time, for instance? In public companies, do ESOPs that are essentially just substitutes for 401(k) contributions, as many are, make any difference in performance, pro or con? In the equity plan area, we know even less. Do equity plans improve employee tenure or motivation? Do these companies have significantly different management cultures than comparable companies, and does that affect performance? Is there a threshold level for benefits from these plans to engage employees?
Employee attitudes toward ESOPs were well measured in the 1986 NCEO study described above, but that study is aging and attitudes may have changed. We also have little information about employee attitudes toward ownership through stock option plans or 401(k) plans, both of which rely on very different mechanisms to enable employees to become owners.
While we know a lot about the demographic characteristics of ESOP companies, we do not know much about whether these companies are more or less participative in their management styles than non-ESOP companies, a critical question given the thrust of the research to date. Only the Ohio study in 1994 provides good data on this, but much more work is needed.
We also know very little about the typical financial structure of ESOP companies, nor are there any recent national data on plan characteristics such as voting rights, board representation, leveraging, annual contributions to the plan, etc. since the 1987 GAO study.
We have very limited information about employee ownership through 401(k) plans (other than a very preliminary NCEO survey) or stock option plans stock purchase plans (section 423 plans). There are good surveys of the characteristics of these plans (see the NCEO Issue Brief The Future of Broad-Based Equity Plans for a review, but efforts to do employee surveys in these companies have not gotten very far. Few companies have been willing to agree to participate, and the costs of undertaking them are substantial.
The 1991 NCEO study on this issue provided a reasonable design, but only could be expanded in terms of the sample and the scope of issues covered.
While recent studies have provided a great deal of insight into these issues, there is room for more work, particularly on the interaction between these plans and other benefit plans.
As noted, the Department of Labor collects data on ESOPs and 401(k) plans through its "5500" form. Large (over 100 employee) companies file annually and small companies file every three years. These data can tell you the name of the plan, the size of its assets, the number of participants, when the plan was started, and if the company is public. The NCEO maintains lists of ESOP companies, described above.
Data on the economic performance of public companies are available from a variety of sources, but data on private companies, other than sales and employment (available from Dun and Bradstreet), are not. Few private companies will provide financial data, making studies that rely on productivity, profits, stock prices, return on assets, or other measures, essentially impossible. "Date of plan announcement" data (for public company studies on market reactions to the stock price) can be obtained from annual reports. Because most broad-based equity plans are in public companies, good economic analyses would be possible if reasonable lists of companies and were available and information on plan start dates was included. Unfortunately, such lists do not exist and must be tediously compiled looking at one company at a time and hoping they reveal something about their plans.
Data on plan characteristics other than what is on the 5500 form must come from surveys. Survey response rates tend to fall between 5% and 25%, creating sample reliability issues.
We will be happy to speak with you about your project. If you are not an NCEO member, of course, this will be only a preliminary talk; you'll want to join the NCEO if you intend to do any sort of serious research in this field. Balancing what we need to know and what we can realistically find out is difficult, but we can at least help you avoid common errors.
Copyright © 2007 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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