Employee share ownership and organisational performance: a tentative opening of the black box
| Date | 16 October 2017 |
| Pages | 1280-1296 |
| DOI | https://doi.org/10.1108/PR-09-2016-0243 |
| Published date | 16 October 2017 |
| Author | Keith Whitfield,Andrew Pendleton,Sukanya Sengupta,Katy Huxley |
| Subject Matter | HR & organizational behaviour,Global HRM |
Employee share ownership and
organisational performance: a
tentative opening of the black box
Keith Whitfield
Cardiff Business School, Cardiff University, Cardiff, UK
Andrew Pendleton
Durham University Business School, University of Durham, Durham, UK
Sukanya Sengupta
Department of Management, Royal Holloway College,
University of London, London, UK, and
Katy Huxley
Wales Institute of Social and Economic Research, Data and Methods,
Cardiff University, Cardiff, UK
Abstract
Purpose –A range of studies have shown that performance is typically higher in organisations with
employee share ownership (ESO) schemes in place. Many possible causal mechanisms explaining this
relationship have been suggested. These include a reduction in labour turnover, synergies with other forms of
productivity-enhancing communication and participation schemes, and synergies with employer-provided
training. The paper aims to discuss these issues.
Design/methodology/approach –This paper empirically assesses these potential linkages using data
from the 2004 and 2011 British Workplace Employment Relations Surveys, and provides comparisons with
earlier analyses conducted on the 1990 and 1998 versions of the survey.
Findings –Substantial differences are found between the 2004 and 2011 results: a positive relationship
between ESO and workplace productivity and financial performance, observed in 2004, is no longer present in
2011. In both years, ESO is found to have no clear relationship with labour turnover, and there is no
significant association between turnover and performance. There is, however, a positive moderating
relationship with downward communication schemes in 2004 and in 2011 in the case of labour productivity.
There is no corresponding relationship for upward involvement schemes.
Research limitations/implications –The results are only partially supportive of extant theory and its
various predictions, and the relationship between ESO and performance seems to have weakened over time.
Originality/value –The study further questions the rhetoric offered in support of wider ESO.
Keywords Quantitative, Organisational performance, Strategic HRM
Paper type Research paper
Introduction
Tom Redman was very sceptical about the power of financial participation schemes, and
employee share ownership (ESO) in p articular, to leverage higher organi sational
performance. His view was that, at the very least, such schemes needed to be part of a
Personnel Review
Vol. 46 No. 7, 2017
pp. 1280-1296
Emerald Publishing Limited
0048-3486
DOI 10.1108/PR-09-2016-0243
Received 20 September 2016
Revised 24 May 2017
Accepted 25 May 2017
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0048-3486.htm
© Keith Whitfield, Andrew Pendleton, Sukanya Sengupta and Katy Huxley. Published by Emerald
PublishingLimited. This articleis published underthe Creative CommonsAttribution (CCBY 4.0) licence.
Anyone may reproduce, distribute, translate and create derivative works of this article (for both
commercial and non-commercial purposes), subject to full attribution to the origin al publication and
authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode
Thanks are due to the sponsors of WERS2004 and 2011 –the Economic and Social Research
Council, the Department of Trade and Industry (now the Department of Business, Innovation and
Skills), the Advisory, Conciliation and Arbitration Service, the UK Commission for Employment and
Skills, the National Institute of Economic and Social Research, and the Policy Studies Institute for their
support of the 2004 and 2011 Workplace Employment Relations Surveys.
1280
PR
46,7
coherent HRM package to have any chance of improving the organisational bottom line.
Our attempts at trying to convince him that he was, perhaps, a little overly sceptical were
typically met with a request to show him the evidence, much of which he found less than
compelling. Unearthing new material on this relationship has therefore motivated much of
our work. Every nugget of information that suggested that maybe financial participation
mattered was seized on to present to Tom on the next occasion we had the pleasure of
spending time in his company. Our discussions with him undoubtedly made us more
circumspect in our support for a set of practices that we felt, in principle, should help
organisations achieve their goals, and more discriminating in our approach to their analysis.
This paper is the result of our latest work at this coal face.
Recent years have seen the advent of a wide range of worker-focussed, holistic
approaches by firms in search of improved competitive performance in their product
markets (Appelbaum and Batt, 1994; Paauwe, 2004; Whitfield and Poole, 1997). Amongst
these practices, ESO has been accorded a key role in the process of leveraging improved
performance via human resource management. It is seen as encouraging employees to
identify more closely with their employing organisations, taking on board their values
more fully, and thereby making a stronger contribution to their continued development
(Blasi et al., 2016; Kurtulus and Kruse, 2017; Blasi et al., 2003; Gamble et al., 2002;
Pendleton, 2006; Kaarsemaker et al., 2009; Robinson and Wilson, 2006; Kruse, 2016). It is
believed that these processes will lead to enhanced organisational performance (Bryson and
Freeman, 2010; Kruse et al., 2012; Poutsma and Braam, 2012; Robinson and Wilson, 2006;
Sesil and Kroumova, 2007). As a result, ESO schemes have been promoted by policy makers
and consultants in many countries.
Whilst there is widespread evidence that organisations with ESO schemes in place do
indeed have higher performance (Fernie and Metcalf, 1995; McNabb and Whitfield, 1998;
Pendleton and Robinson, 2010; Sengupta, 2008; Kurtulus and Kruse, 2017), there is
considerable debate as to how share ownership plans promote these favourable effects.
Several explanations can be found in the literature. Possibly the most common explanation
is what has been a “golden path”approach. This suggests that ESO schemes have their
main impact upon performance through improving affective commitment (employees’
emotional attachment to, identification with and involvement in the organisation).
An alternative view suggests that share ownership schemes are primarily an effective
worker retention tool, and reduce labour turnover by making it financially lucrative for
workers to remain in the firm and costly to exit (Marsden, 1999; Morris et al., 2006).
Labour retention facilitates the development of human capital within the firm, leading to
higher levels of employee and organisational performance. This has been called the
“golden handcuffs”hypothesis.
The most common theoretical perspective in the ESO literature has drawn on principal-
agent theory, suggesting that employee share schemes align the interests of workers with
those of their firms. However, a widely recognised limitation is the 1/nor “free rider”
problem that applies to all group incentives. To counter this, it has been argued that ESO
needs to operate in conjunction with employee involvement and participation in decisions
(Weitzman and Kruse, 1990). A synergistic relationship between ESO and these other forms
of involvement have therefore been widely predicted, and there is evidence to support this.
Finally, more recent contributions have highlighted the synergistic combination of ESO and
training. Here it is argued that ESO can potentially signal mutual commitment and therefore
encourage employers to offer training to employees (Pendleton and Robinson, 2011;
Blasi et al., 2016).
The Workplace Employment Relations Surveys (WERS) of 2004 and 2011 provide good
opportunities to examine these alternative processes through which ESO can influence
performance. Furthermore, enhancements to the employee ownership questions in the 2004
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ESO and
organisational
performance
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