How does employee ownership affect motivation, retention, and company performance?

"Employee Ownership A trend that seems to have leveled off is employee ownership, most commonly implemented as employee stock ownership plans, or ESOPs . ESOPs are not the same as stock options, however. In an ESOP, employees receive compensation in the form of company stock. Recall that stock options give employees the opportunity to purchase company stock at a set price, even if the market price of the stock increases above that point. Because ESOP employees are compensated with stock, over time they can become the owners of the company, an attractive exit strategy for current owners seeking a smooth transition. Behind employee ownership programs is the belief that employees who think like owners are more motivated to take care of customers’ needs, reduce unnecessary expenses, make operations smoother, and stay with the company longer. Exhibit 9.8 Companies sometimes create unusual perks to help attract and retain talented workers. Timberland employees receive a $3,000 subsidy to buy a hybrid automobile. Worthington Industries offers workers on-site haircuts for just $4. And at SC Johnson, retirees receive a lifetime membership to the company fitness center. One company even has a beer tap that it offers after 3 p.m. every Friday to get workers off to a relaxing weekend. What trends are emerging in the ways companies seek to motivate workers and keep them happy on the job? (Credit: nyuhuhuu/ flickr/ Attribution 2.0 Generic (CC BY 2.0)) According to the National Center for Employee Ownership, there are roughly 6,717 ESOPs in the United States, with a total of 14 million participants. 21 Despite changes in tax laws that resulted in a decrease in the number of publicly traded companies with ESOPs and the closure of dubious plans, the amount of stock held by ESOPs continues to increase. 22 Multiple studies over 30 years conclude definitively that employee ownership results in a powerful competitive tool when combined with participative management. 23 ESOPs, however, also have drawbacks. The biggest concern is that some employees have so much of their nest eggs tied to their company’s ESOP. If the company’s performance starts to decline, they risk losing a significant portion of their wealth. This is what happened at Piggly Wiggly Carolina, a chain of grocery stores. Business started to decline. Employee and retirees watched as senior management made decisions to raise prices and then sell stores. The share value started declining each year, losing 90 percent of its value, until employees received notice the company did not have enough value to pay distributions that year. The notice stated that trustees planned to continue selling assets in the hope of making future payments. Former employees filed a lawsuit alleging senior management decisions resulted in lining their own pockets at the cost of the company’s value. 24 Still, many companies successfully implement ESOPs. Axia Home Loans, a national residential mortgage lender based in Seattle, experienced record-breaking production and was able to attract top talent in the first year after creating its ESOP. After taking questions from non-managing shareholders about exit strategies, Gellert Dornay, president and CEO, looked into an ESOP and thought it would fit with the company’s innovative and forward-thinking culture. “Studies show that employee-owned companies experience increased employee satisfaction, retention, and productivity gains,” Dornay said, adding, “an ESOP rewards employees who contribute to the company’s success by allowing them to share in the company’s future increase in value.” 25 So what enables one company with an ESOP, such as Axia Home Loans, to be more successful than another"