By Corey Rosen. You’ve heard it over and over. Good companies create a sense of ownership among employees at work. They share financial information with employees at the corporate and work level, they encourage employees to contribute ideas, they set up employee teams, and they limit hierarchy. Bosses focus less on telling people what to do than listening to what employees think should be done. Creating a sense of ownership leads to high employee engagement and high engagement leads to higher performance. Research by the Gallup Organization finds that high engagement companies “experience 22 percent higher profitability and 21 percent higher productivity compared with workgroups with low levels of engagement.”
Most of the articles on this topic and most of the consultants I have heard talk about it say you don’t need to actually share ownership with employees to make them feel like owners. I’d like to take these folks to a fancy lunch. They can soak up the atmosphere, smell the aromas, think about what they would most like to order, and even help pay for the bill, but they can’t actually eat. After all, a sense of ownership should be enough. Asking employees to think and act like owners so that the company can prosper may help make their jobs more secure and their work more interesting, but the biggest beneficiaries of the increased profits will be the actual owners. A management Knute Rockne would never have urged employees on by saying “win one for the shareholder.”
But it is not just an issue of fairness. Study after study shows that combining employee engagement and broad-based employee ownership leads to much better performance. For instance, a study of companies with both employee stock ownership plans (ESOPs) and high engagement showed they grew 6 percent to 11 percent per year faster in terms of sales and employment than would have expected if they did not have either. A massive study of 780 companies that applied to be a Fortune Best 100 Companies to Work for in America similarly found that while engagement and ownership each have positive effects, the synergistic impact of the two is far greater.
There is good reason for this. As an owner, employees know that when they are asked–indeed expected–to think about what they and their colleagues can do to help the company thrive that the benefits are shared with them. Ownership is much more rewarding than profit sharing (albeit many companies providing a sense of ownership don’t even do that). If employees create another $100,000 in profits each year, as a profit sharer they might get $10,000. But if company’s share value equates to a five to one price to earnings ratio, that’s $500,000 more in value.
Ownership is also deeply connotative. Sharing it is the most significant way possible to tell employees they really do matter. It also tells managers at all levels that employees now have the right to share ideas and information. The biggest barrier to high engagement programs is often reluctance of mid-level management to take that leap. Shared ownership makes it easier.
There are lots of ways to share ownership broadly, many with substantial tax benefits. The employee ownership sector in the U.S. is now a major part of the economy. It can be a win-win for all involved.
Thanksgiving is now a memory, but I for, one, am glad I was not just called on to help choose the menu and make the meal, but only could get a sense of the feast. That would have been a real turkey.
*This article was originally published on inc.com.
Corey Rosen is Founder of the National Center for Employee Ownership, a nonprofit membership and research organization that was founded in 1981 to provide most objective and reliable information possible on employee ownership. Join the NCEO on March 8th in Santa Clara, California where top equity experts will discuss Equity Compensation for Companies Staying Privately Owned: Plan Design, Liquidity, and Compliance.