Motivating Employee-Owners in ESOP Firms: Human Resource Policies and Company Performance

Douglas Kruse, Richard Freeman, Joseph Blasi, Robert Buchele, Adria Scharf, Loren Rodgers, Chris Mackin

NBER Working Paper No. 10177
Issued in December 2003
NBER Program(s):Labor Studies

What enables some employee ownership firms to overcome the free rider problem and motivate employees to improve performance? This study analyzes the role of human resource policies in the performance of employee ownership companies, using employee survey data from 14 companies and a national sample of employee-owners. Between-firm comparisons of 11 ESOP firms show that an index of human resource policies, nominally controlled by management, is positively related to employee reports of co-worker performance and other good workplace outcomes (including perceptions of fairness, good supervision, and worker input and influence). Within-firm comparisons in three ESOP firms, and exploratory results from a national survey, show that employee-owners who participate in employee involvement committees are more likely to exert peer pressure on shirking co-workers. We conclude that an understanding of how and when employee ownership works successfully requires a three-pronged analysis of: 1) the incentives that ownership gives; 2) the participative mechanisms available to workers to act on those incentives; and 3) the corporate culture that battles against tendencies to free ride.

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Document Object Identifier (DOI): 10.3386/w10177

Published: Virginie Perotin and Andrew Robinson, editors, “Employee Participation, Firm Performance and Survival,” Volume 8 in the series, Advances in the Economic Analysis of Participatory and Self-managed Firms, pp 101-127 (Elsevier 2004).

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