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PurposeUsing a population study, we provide evidence on the important but understudied issue of company survival under employee ownership, as well as on the performance effects of employee ownership and the issue of whether employee ownership substitutes for other pension benefits. Design/methodology/approachCompany survival and pension benefits are assessed using a unique dataset from Dun & Bradstreet of privately held Employee Stock Ownership Plan (ESOP) companies over the 1988–1999 period, matched to non-ESOP companies in the same industry. Performance is assessed using pre/post-comparisons of ESOP adopters in the 1988–1994 period. FindingsPrivately held ESOP companies in 1988 were only half as likely as non-ESOP firms to go bankrupt or close over the 1988–1999 period, and only three-fifths as likely to disappear for any reason. The ESOP companies had significantly higher post-adoption annual employment and sales growth, along with higher sales per employee. ESOP companies are four times more likely than their non-ESOP pairs to have defined benefit pension plan and other forms of defined contribution plans. Research implicationsThe greater survival was not explained by higher productivity, or by greater compensation flexibility. The higher survival may instead be tied to complementary policies adopted along with ESOPs to create a more committed and engaged workforce that contributes ideas to enhance survival and is more flexible when economic difficulties arise. The pension results are consistent with other studies on compensation under employee ownership, suggesting that employee ownership is generally used as a form of efficiency wage to provide above-market compensation. Social implicationsHigher survival among ESOP companies could result in lower job loss and unemployment, potentially providing a public policy rationale for support of employee ownership. Originality/valueThe chapter provides the first examination of company survival in privately held ESOP companies, and one of the few examinations of how ESOPs relate to other pension benefits.
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... Several studies have also found that ESOPs generally appear to supplement rather than replace diversified pension plans and assets (Kruse 2002;Rodgers 2010;Blasi, Kruse, and Weltmann 2013;Wiefek and Nicholson 2018). ...
... The question of overall financial risk should be considered in the context of job security, since the biggest financial risk faced by most workers is the loss of their job. The prior evidence points to greater job security in employee share ownership companies because of higher survival rates and greater employment stability (Pérotin 1987;Blair, Kruse, and Blasi 2002;Park, Kruse, and Sesil 2004;Brill 2012;Blasi et al. 2013;Burdín 2014;Kurtulus and Kruse 2017). Greater job security may result from companies minimizing layoffs in attempting to build and sustain an ownership culture, but may also reflect higher worker quality or lower compensation in accordance with compensating differentials theory. ...
Article
A major theoretical objection against employee share ownership is that workers are exposed to excessive financial risk. Theory posits that 10 to 15% of a typical worker’s wealth portfolio can be prudently invested in employer stock. The authors analyze employee share ownership in US family portfolios using the 2004 to 2016 Survey of Consumer Finances. Overall, 15.3% of families with private-sector employees held employer stock in 2016, and one in six of these families exceeded the 15% threshold. Employee share ownership appears to generally add to, rather than substitute for, both pension and overall wealth. Employee share owners express higher risk tolerance and financial knowledge and greater understanding of the value of diversification. While financial risk does not appear to be a substantial problem for most employee share owners, a small minority may face excessive risk, and the authors suggest approaches to reduce such risk.
... Higher resilience and lower employee fl uctuation in times of economic crisis Studies comparing employee-owned companies with conventional companies concluded that the former have 20% to 50% higher survival rates on the markets, with the difference being particularly pronounced in times of crisis (Blair et al., 2000;Blasi et al., 2013;Kruse, 2016). Kruse et al. (2012) found that workers in the ESOP companies are 50% less likely to voluntarily seek employment in the next year. ...
... Employee-owned companies are more successful not only in times of crisis, but also when business is good. Relative to comparable conventional enterprises, employee-owned fi rms on average enjoy between 4% and 10% higher productivity (Brill, 2012;Freeman, 2007;Blasi et al., 2013;Kruse, 2016), 2.3% greater sales-per-employee growth (NCEO, 2019) and 8.8% faster general growth (Kramer, 2010;Blasi et al., 2017). ...
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The premise of this paper is that state aid to distressed companies should benefit not only the current owners but also the employees, who are the ones taking personal risks to continue or restart companies. Government aid during the Great Recession was aimed primarily at restoring the status quo. In the current deeper crisis, aid should be designed to create a fairer, more inclusive and more socially responsible economy by promoting employee ownership as both an incentive and a reward. We show how the Employee Stock Ownership Plan, which has been pioneered in the US for 40 years and can be adapted to the European legal context, can be used as the vehicle for structuring this aid.
... On the other hand, recent research argues that Motivational drivers to choose worker cooperatives as an entrepreneurial alternative: evidence from Spain these arguments rely on economic theory and limited empirical observation (Perotin 2013(Perotin , 2016 while highlighting the role of WCs as tools for generating employment and income with a higher survival rate and better growth prospects than other organisational models (e.g. Arando et al. 2009;Blasi et al. 2013). ...
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Worker cooperatives as an entrepreneurial activity that values collective benefits have raised increasing interest in recent years. This prioritisation clearly distinguishes this business model from other entrepreneurial forms. Nevertheless, entrepreneurship research to date has rarely focused on worker cooperatives. This study draws on this gap by examining the main factors decisive for people preferring this business model. The results suggest five factors that can act as drivers for improving entrepreneurial creation through worker cooperatives and conforming to an entrepreneurship path aimed at improving social cohesion. These factors are related to several key points: cooperative principles and the governance model of these organisations; the perception of this model as especially suited for favouring equality; the individual’s social orientation; and the influence of external aids provided to the constitution of worker cooperatives. The findings also suggest the need for effective public policies that favour the cooperative model since it promotes a more responsive and sustainable economic growth.
... Also, a significant amount of variability was left unexplained in the employee ownership-firm performance relationship in the recent meta-analysis (O'Boyle et al., 2016) and thus we aimed to account for that variance with industry characteristics. Nevertheless, the incentive alignment effect of employee ownership can impact other firm-level outcomes such as firm survival/failure, corporate social responsibility, and employment stability (e.g., Blasi, Kruse, & Weltmann, 2013;Kurtulus & Kruse, 2017). Examination of those effects should contribute to the literature by expanding the nomological network of employee ownership. ...
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Many studies have examined the relationship between employee ownership and firm productivity. However, research is lacking on how this relationship is strengthened or weakened by environmental characteristics. This is a critical oversight in the employee ownership literature because industry characteristics can significantly influence employees’ expected gains from their firm ownership. Thus, based on agency theory and expectancy theory, we develop a multilevel contingency model of employee ownership with industry growth and instability as boundary conditions. We test the proposed model with a sample of 573 firms in South Korea (Study 1: 1,415 firm years) and a sample of 892 firms in 28 European countries (Study 2: 4,768 firm years). In both studies, we find that employee ownership does not significantly contribute to firm productivity on its own. However, we find a significant three-way interaction effect of employee ownership, industry growth, and industry instability on firm productivity. Specifically, employee ownership is most effective at improving firm productivity when both industry growth and industry instability are high. We discuss the theoretical and practical implications of the findings.
... Quarrey and Case review the benefits of ESOPs for workers as well as for firms (e.g. Kruse et al., 2010;Blasi et al., 2013) and proceed with the central theme of spreading information about those outcomes. Their suggestions for how to reach out to business owners and inform them of the benefits of ESOPs can inform efforts to make a difference in this area. ...
... Notwithstanding the potential gains for potential or significant increase in productivity and business performance, these studies have provided empirical evidence of the benefits of an employee ownership structure. While it is sensible to make an interpretation of the positive relationship between these advantages and other objective measures, such as profitability and revenue, several other studies (Blasi, Kruse & Weltmann, 2013;Pendleton, 2002;Thompson et al., 1992) support these findings on firm performance and productivity to emphasize the potential of enhancing competitive capability and possibly make it sustainable by increasing the flexibility of the workforce in responding to environmental threats and opportunities. ...
Research
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This MBA research project addresses the management challenges in a majority-owned ESOP during an industry recession, through the investigation and analysis of the genesis of the employee ownership structure, and, the impact of Executive Managers in the creation and survival efforts of an organization in the information technology industry in America. Since an ownership scheme conversion is a transformational process and strategic choice, business owners and managers in 'conventional business' considering a transition plan and long-term objectives can learn how a representative democracy through high managerial involvement on strategic decision making can positively affect the development of an ESOP structure. Drawing upon literature on productivity, employee participation and corporate governance, this study critically analyses issues of ESOP terminology as well as the advantages and disadvantages that drive the ESOP decision, given the conditions in which a majority ownership structure is more likely to occur. The researcher found that the case organization was a divested business unit in which the objectives and interests of both the employees and managers were the most important influence for the creation of the ESOP Trust. The results also revealed that three main aspects of the business affected how the organization responded to the external environment during the 2000-2004 industry recession: the management of financials, of people and customer-supplier relationships. Based on a single case study, the research was conducted through in-depth interviews with Executive Managers, and an employee-owner and a fellow researcher from a non-profit organization which focuses on employee ownership for American companies. Data was collected and analyzed qualitatively with an inductive stance to build explanations and connections from previous studies on ESOP plans.
... One of the most visited topics in this field is studying how the workers' participation (either in the ownership, in the decision-making process, or in the profit distribution) affects business performance. To this regard, numerous existing studies have found a positive relationship between these two variables (Jones and Svenjar 1982; Kyriakopoulos et al. 2004;Blasi et al. 2013). Specifically, Kruse and Blasi (1997) reviewed the literature referring to this topic and concluded that the positive link between participation and performance is caused by the motivation, commitment, and information-sharing that employees experience when they participate in decision-making, the distribution of profits, and ownership. ...
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Cooperatives are enterprises characterised by certain principles, such as cooperation, democratic decision-making, and training that define their entrepreneurial behaviours. Several of these cooperative principles appear to exert a positive influence on the performance of these firms and on the three dimensions that define the entrepreneurial orientation of companies: proactiveness, innovativeness, and risk-taking. This study builds a theoretical model that relates cooperative principles, entrepreneurial orientation, and performance from the perspective of corporate governance and human resource management practices, in order to study the links that may exist between these elements. Using data from a survey on 155 worker cooperatives in the Basque Country (Spain) and applying the partial least squares technique, we find that cooperative principles positively affect the performance of cooperatives, both directly and via entrepreneurial orientation.
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Purpose The purpose of this paper is to give an updated overview of the research on employee ownership. What does the scientific literature reveal about advantages and disadvantages? What can be learned from different models used in Italy, France, Mondragon (Spain), UK and US with many employee-owned firms in contrast to Denmark. Design/methodology/approach A structured review of the literature on employee. The paper identifies different mechanisms leading to effects on productivity, job stability, distribution, investment etc., and reviews the empirical evidence. The main barriers and drivers are identified and different models for employee ownership in Italy, France, Mondragon (Spain), UK and US are reviewed to identify potential models for a country like Denmark with few employee-owned firms. Findings The article gives an overview over the theoretical predictions and the main empirical evidence of the effects of employee ownership. The pros are greater employee identification with the firm and increased productivity reinforced by increased participation. Employee-owned firms have more equal distribution of wages and more stable employment, and they have greater mutual control between employees and fewer middle managers. The motivation effects may be smaller for large firms and lack of capital may lead to lower levels of investments and capital per employee. Originality/value Comprehensive and updated literature review on the effects and successful formats of employee ownership to identify models for implementation in countries with few employee-owned firms.
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Using the pension database obtained from Form 5500 from 2000 to 2014, we provide the first comprehensive analysis of the determinants of employee ownership in retirement pension plans. By investigating various motivations simultaneously using the horse racing method, we find that firms with higher idiosyncratic risk, weak governance, a greater marginal tax rate, and greater union intensity are more likely to offer employee ownership. This study provides valuable insights to investors that they should properly understand the impact of employee ownership on the firm and appropriately evaluate firms with employee ownership by taking into account diverse motives.
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Research on employee ownership has focused on questions of productivity, profitability, and employee attitudes and behavior, while there has been little attention to the most basic measure of performance: survival of the company. This study uses data on all U.S. public companies as of 1988, following them through 2001 to examine how employee ownership is related to survival. Estimation using Weibull survival models shows that companies with employee ownership stakes of 5% or more were only 76% as likely as firms without employee ownership to disappear in this period, compared both to all other public companies and to a closely matched sample without employee ownership. While employee ownership is associated with higher productivity, the greater survival rate of these companies is not explained by higher productivity, financial strength, or compensation flexibility. Rather, the higher survival is linked to their greater employment stability, suggesting that employee ownership companies may provide greater employment security as part of an effort to build a more cooperative culture, which can increase employee commitment, training, and willingness to make adjustments when economic difficulties occur. These results indicate that employee ownership may have an important role to play in increasing job and income security, and decreasing levels of unemployment. Given the fundamental importance of these issues for economic well being, further research on the role of employee ownership would be especially valuable.
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The idea of workers owning the businesses where they work is not new. In America's early years, Washington, Adams, Jefferson, and Madison believed that the best economic plan for the Republic was for citizens to have some ownership stake in the land, which was the main form of productive capital. This book traces the development of that share idea in American history and brings its message to today's economy, where business capital has replaced land as the source of wealth creation. Based on a ten-year study of profit sharing and employee ownership at small and large corporations, this important and insightful work makes the case that the Founders' original vision of sharing ownership and profits offers a viable path toward restoring the middle class. Blasi, Freeman, and Kruse show that an ownership stake in a corporation inspires and increases worker loyalty, productivity, and innovation. Their book offers history-, economics-, and evidence-based policy ideas at their best. © 2013 by Joseph R. Blasi, Richard B. Freeman, and Douglas L. Kruse. All rights reserved.
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Firms with broad-based employee share ownership plans often claim ESOPs increase productivity by improving employee incentives. Do they? The answer depends on the number of employees and the size of ESOP. Small ESOPs comprising less than 5% of shares, granted by firms with moderate employee size, increase the economic pie, benefitting both employees and shareholders. The effects are much weaker when there are too many employees to mitigate free-riding. Although some large ESOPs increase productivity and employee compensation, the average impacts are small, because they are often implemented for non-incentive purposes, such as conserving cash by substituting wages with employee shares or forming a worker-management alliance to thwart takeover bids.
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