Shared Capitalism: It Makes a Difference

Workplace performance is positively influenced by capitalist compensation

A recently published paper, “Creating a Bigger Pie? The Effects of Employee Ownership, Profit Sharing and Stock Options on Workplace Performance,” found that shared capitalism affects workplace performance. It lowers turnover and increases loyalty and willingness to work hard, particularly when combined with high-performance policies, low levels of supervision, and fixed pay at or above market levels. 

The 2006 data is based on a sample of 1,173 organizations. Of the organizations, 1,081 are for-profit, 92 are not-for-profit, and, of the for-profit companies, 595 have a stock ownership option. The tables show a trend comparison between 2002 and 2006 and the specific 2006 practices for each of the sub-groups. 

Workplaces where employees average more shared capitalist compensation report greater employee effort along several dimensions. The only outcome with which shared capitalist compensation is adversely related is absenteeism. Looking at particular programs, the strongest effects of shared capitalism are for profit sharing and gain sharing. (Profit sharing includes deferred profit sharing.) Most workers report that cash incentives, stock options, ESOP stock, and ESPP participation motivate them to work harder. The less risky forms of shared capitalist programs — profit sharing, gain sharing, stock options, and ESOPs — have greater effects than the riskier programs in line with concerns about workers being averse to risking their own capital. 

Finally, the paper finds important interactions between shared capitalist programs and other aspects of company policies that affect workplace performance. High-performance policies are positively linked to good workplace outcomes and are driven by certain types of shared capitalism. This evidence, combined with a companion paper that finds that shared capitalism increases worker monitoring, challenges the critique that the motivations of the average worker interfere with the introduction of basic shared capitalism principles. The interaction of the effects of shared capitalism with other corporate policies suggests that the various shared capitalist and other policies may operate through a latent variable, “corporate culture.” 

The accompanying tables report the use of shared capitalism approaches in the United States. Table 1 illustrates the percentage of people covered by these types of programs, and Table 2 shows the number of participants in millions in these programs. Among profit sharing plans and gain sharing plans, such as commission bonuses, the numbers of employees benefiting from these programs has increased from 2002 to 2006. The percentage of employees covered by profit sharing plans increased from 33.5 percent to 38.4 percent. Also, the percentage of employees in a gain sharing plan in 2002 — 23.2 percent — increased to 26.8 percent in 2006. The only decrease was seen in the percentage of employees who held stock options, which decreased from 13.1 percent in 2002 to 10.8 percent in 2006. 

Table 3 shows the amounts of employees’ financial compensation in these shared capital programs. The median bonus for employees in profit sharing plans has increased from $1,500 in 2002 to $2,000 in 2006. This represents a 1 percent increase in the average percent of salary employees received as a bonus. For employees who are involved in a gain sharing program, the median bonus increased from $1,500 in 2002 to $2,500 in 2006. This represents a 1.1 percent increase in the average percent of salary employees received as a bonus. Table 3 also illustrates that the decrease in company stock ownership went from an average dollar value of $46,411 in 2002 to $32,691 in 2006. It is possible that the number of companies that have moved to limit company stock in their defined contribution plans throughout the last few years is having measurable impact on the amount of company stock value. 

The analysis and question design for the study were by Drs. Douglas Kruse, Joseph Blasi, and Richard Freeman as part of the National Bureau of Economic Research (NBER) Shared Capitalism Project. Questions about the items studied were included in the 2006 General Social Survey which was administered by the National Opinion Research Center at the University of Chicago. 

The GSS is mainly supported by the Employee Ownership Foundation, the ESOP Association, the Beyster Institute at the University of California at San Diego, the Profit Sharing/401k Council of America, the National Center for Employee Ownership, and the Shared Capitalism Project of the National Bureau of Economic Research. The paper also relies on data from NBER surveys of more than 40,000 employees in hundreds of facilities in 14 firms and from employees on the U.S. General Social Survey 2002.