2011 Employee Ownership and Shared Capitalism: New Direction in Research

Abstract

One of the most persistent and important, but often ignored, trendsof contemporary market economies continues to be the ownership offirms by their employees. Since the emergence of different experimentswith employee ownership in the early 20th century, a consistentlygrowing group of companies and expanding set of institutionshave opened the door for firms to share the financial returns of economicproduction with broad groups of employees. The growth ofvarious forms of “shared capitalism” (a term that I will use interchangeablywith “employee ownership”) has meant that, currently, a little underhalf of all employees in the private sector own stock in the companiesin which they work or receive cash-based bonuses linked to differentmeasures of corporate performance (Freeman, Blasi, and Kruse 2010).Although a number of careful academic studies have provided ampleevidence that shared capitalism holds significant potential for creatingmore productive, stable, and equitable companies, the topic remainsremarkably absent from policy and popular discussions about the workplace,employment, compensation and benefits, economic productivity,and competitiveness. In fact, employee ownership is often viewed as afringe phenomenon among policy makers, managers, journalists, academics,and the general public.Over the last three decades, however, a large, multidisciplinaryacademic literature has revealed that employee ownership is, in fact,a remarkably common phenomenon that can be found in a diversegroup of firms and industries. This literature also provides persuasiveevidence that shared capitalism can have significant and positiveimpacts on employee well-being, employee wealth accumulation, firm productivity, and long-term firm stability and growth. Although a commonassumption is that these positive outcomes are the consequenceof employees being more motivated in their work by owning stock, theresearch consistently suggests that, in order to generate these positiveoutcomes, firms and managers need to structure and implementshared capitalism in specific ways—namely, by combining employeeownership with increased decision-making opportunities for employeesand other HR practices associated with the high-performance worksystems model (Appelbaum, Bailey, Berg, and Kalleberg 2000), suchas extensive training on how firms work and extensive sharing of financialinformation. In addition, the literature has also demonstrated that,for shared capitalism to produce these positive effects, it needs to beoffered as an additional reward on top of existing wages and other benefitsrather than as a replacement. If implemented under the right conditions,shared capitalism offers a model of economic production basedon the shared effort of all employees in creating productive, efficient,innovative, and stable organizations, as well as shared financial rewardsfor such effort. This model offers a stark alternative to the dominantone based on the primacy of short-term shareholder value and the concentrationof the wealth generated by corporations into the hands of afew top managers.