Why do firms adopt employee share ownership? Bundling ESO and direct involvement for developing human capital investments
| Published date | 07 April 2015 |
| Date | 07 April 2015 |
| Pages | 296-313 |
| DOI | https://doi.org/10.1108/ER-02-2014-0016 |
| Author | Loris Guery |
| Subject Matter | HR & organizational behaviour,Industrial/labour relations |
Why do firms adopt employee
share ownership? Bundling ESO
and direct involvement for
developing human
capital investments
Loris Guery
ISAM-IAE, University of Lorraine, Nancy, France
Abstract
Purpose –The purpose of this paper is to examine the relationship between employee share
ownership (ESO) and employer-provided training. To be more specific, as both ESO and involvement
practices can contribute to developing human capital, the paper addresses the question of whether they
are substitutes or complements in the relationship with training.
Design/methodology/approach –The theoreticalhypotheses are tested using the Frenchnationally
representativeestablishment-level survey,REPONSE, which is similar to the BritishWERS. The sample
consists of 1,523 establishments.
Findings –The results are consistent with studies conducted elsewhere (e.g. in the UK) and provide
novel findings, thereby suggesting a complementarity between ESO and involvement practices with
bundles of practices becoming increasingly more complex as training expenditures increase.
Research limitations/implications –To provide further insights, future research that uses more
precise information regarding ESO plans is needed.
Practical implications –Results can provide HR managers with valuable information regarding the
organisational characteristics necessary to ensure a fertile ground for their training expenses.
Originality/value –The paper reflects a growing awareness that human capital development and
share ownership plans may be related and that this relationship might be a more compelling
explanation for share ownership plans than the standard agency theory. The contribution of ESO
plans to the development of employee competencies may be at least as important as their possible
effects on employee motivation and effort.
Keywords Training, Human capital, Employee involvement, Pay, Human resource management,
High-performance work practices, Employee share ownership, Involvement practices,
Human resource bundles
Paper type Research paper
Introduction
In recent years, there has been a growing number of financial participation studies
regarding the relationship between employee share ownership (ESO) and employer-
provided training (Pendleton and Robinson, 2011). Rousseau and Shperling (2003)
suggest that long-term growth in ESO plans observed in many advanced industrial
countries is related to the growth in importance of intangible human capital (as
knowledge and skills) relative to tangible physical capital. The problem with human
capital is that it cannot be tied to a particular firm in the same way as physical capital.
Thus, ESO can be a solution to restrict the risk that labour mobility eliminates the
value of training investments. Other company management practices also favour a
long-term relationship between employees and their company, which is conducive
to training. This is the case of involvement practices that enhance organisational
Employee Relations
Vol. 37 No. 3, 2015
pp. 296-313
©Emerald Group Publishing Limited
0142-5455
DOI 10.1108/ER-02-2014-0016
The current issue and full text archive of this journal is available on Emerald Insight at:
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296
ER
37,3
commitment and have, in particular, the effect of reducing employee turnover (Huselid,
1995; Guthrie,2001). Thus, ESO and involvement practices can be viewed as alternatives
whose combined effect remains an under-researched area, even if involvement practices
are found to enhance the effects of ESO in financial participation literature (Pendleton
and Robinson, 2010). Indeed, to our knowledge, only Robinson and Zhang (2005) and
Pendleton and Robinson (2011) have developed empirical studies focused on assessing
whether ESO is conducive to training. While the latter do not test the complementarity
between ESO and involvement practices,the former find little evidence tosupport such a
complementarity. Accordingly, the need for further research in this area is emphasised
by the authors given the lack of evidence in this area.
This paper seeks to advance the academic debate relative to the use of ESO for
developing and protecting investments in human capital rather than as a motivational
and incentive tool. It addresses a significant gap in the recent literature relative to the
role of ESO in facilitating employer-provided training using data from the French
employment relations survey REPONSE, which is nationally representative of French
establishments. France is a relevant context to study ESO. Indeed, the fiscal and
legislative framework promotes ESO adoption and development. For example, changes
of the capital base of a listed company (i.e. further share offers) must be accompanied
by share offers to employees. Moreover, when employees hold less than 3 per cent of
the company’s capital, a general meeting must be held every three years to propose to
shareholders that shares should be distributed to employees joining the company
savings plan. Thus, ESO plans in France are a broad-based financial participation
mechanism as all employees are eligible to join an ESO plan (except employees working
under fixed-term or temporary contracts). All these legal requirements favour a
significant ESO. Given that there is little empirical evidence regarding the use of ESO
as a way to promote investments in human capital and that previous studies were
conducted in the British context, the first key question is whether ESO is conducive to
high levels of training expenses in France (it can also be noticed that the proportion of
companies offering ESO schemes are quite similar in UK and in France: Lowitzsch and
Hashi, 2014). Given the theoretical complementarity of ESO and involvement in establishing
an organisational context that favours employer-provided training, the second key question
is whether ESO is efficient per se or whether bundling ESO and involvement practices have
a major impact. This paper is unique in that it not only tests the interaction between
ESO and involvement in their relationship with human capital investment, but
it also tests the use of different ESO/involvement practice bundles, following the
methodology developed by Dube and Freeman (2010) in their study focused on
the complementarity of shared-compensation and decision-making systems.
Our results are consistent with previous studies and provide novel findings. They
highlight a complementarity between ESO and involvement practices, with bundles
setting up the conditions for high levels of training expenses. They also suggest that,
more than the intensity of involvement practices, what is important is the use of
different types of involvement practices in combination with ESO. By highlighting these
complementarities, this research adds to our understanding of ESO and the use of bundles
of practices to favour the development of investments in human capital.
This paper is organised as follows. Following this introduction, we develop the
theoretical arguments linking ESO and involvement practices to training expenditures
and address the question of complementarity between ESO and involvement practices.
In the third section, we focus on the sample and the methodology. The results and
findings are subsequently presented and are followed by a discussion and conclusions.
297
Bundling ESO
and direct
involvement
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