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

Abstract

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 stock ownership plan (ESOP) firms, using employee survey data from 13 companies. Between-firm comparisons of 11 ESOP firms show that an index of human resource policies, nominally controlled by management, is related to employee reports of coworker performance and other good workplace outcomes. Within-firm comparisons in two firms show that workers who participate in employee involvement committees are more likely to exert peer pressure on shirking coworkers. 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.