Employee perceptions of share ownership schemes: an empirical study
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Date
2000
Authors
Mazibuko, Noxolo Ellen
Journal Title
Journal ISSN
Volume Title
Publisher
University of the Free State
Abstract
All South Africans need to share a common vision. Constructing a common vision is not an easy task but is certainly worth the try. One aspect could be to persuade people to take risks by encouraging them not to be frightened off by threats of disastrous consequences. The first priority and most critical part of the vision is to draw all South Africans together.
The second aspect of the vision is to attempt to negotiate the future with all participants, especially in the upliftment of the country's economy. The word 'all' should be seen as important and should be stressed because there are genuine players from all spheres who should be given the opportunity of sitting together and discussing issues of concern, with particular reference to the business environment of the country. Economic variables, socio- economic and political issues relevant to the business environment of the country are discussed in this study. This study concentrates on the important issues of employee
participation because employees are the basic foundation of any business. Employees in the workplace have the same basic aim as that of consumers in the market-place. In other words, employees and consumers want the maximum amount of output for their input. For employees, this usually means more say in management decisions, a greater stake in the success of the company, more attention to their ideas, and higher income. A company can be truly participative only when all stakeholders are actively involved in creating the vision, interdependencies and systems of the company and when their day-to-day actions are appropriately participative. Participative behaviour extends· beyond the company's
boundaries. The truly participative company involves customers, suppliers and union representatives as well as employees, managers and functional staff members.
Since members of all these groups help to create the quality of the company's products and services and of the business relationships uniting them, participation must extend to all these groups. Additionally, participation praises.and values the capacity of people byway of encouraging financial participation and by respecting employees. Participation values the capacity of people to grow, to contribute meaningfully to performance.
When people come together in an economic organisation or a workplace, an effort must be made to ensure that the company is productive, that it adds value and that people work together toward a common purpose.
One of the ways of contributing meaningfully in an organisation and adding value can be the involvement of employees in decision-making processes and financial participation. Profit-sharing and Employee Share Ownership Schemes (ESOPs) have ·been fairly common financial participation practices in many countries. For the purpose of this study, the activities of ESOPs as employee participation option was investigated since it forms part of the management approach called "participative management".
It is believed that ESOPs will contribute to a society based on democracy, equality and respect for the person. Also, employee ownership will make employees more committed to their jobs, companies and work performance and will also increase labour management co-operation. Furthermore, allowing full participation in decision-making increases employee awareness of the prospects and problems facing the company.
Companies with ESOPs generally report increased employee motivation, productivity and retention. However, implementing an ESOP in isolation will have little bearing on employees. To be an effective motivational tool, an ESOP must be combined with other factors, particularly an employee-participation programme which affords employees greater decision-making responsibilities in their jobs. An ESOP will only be successful if a company does a good job of informing it's employees about the programme. Lastly, the successful implementation of employee ownership reduces confrontation and industrial
disputes.
The aim of this study was to investigate some of the problems associated with the introduction and successful management of ESOPs. Furthermore, an ESOP considers possible alternatives which will address the needs of both parties (employees and management) with regard to the implementation of ESOPs. A further aim was to investigate how perceptions of ESOPs can be influenced and managed through managerial antecedents such as trust, empowerment, communication and organisational commitment.
Ownership is not a simple concept. Various definitions have been suggested. Some of the confusion stems from the fact that many authors have failed to distinguish between the following criteria: the role shares play; the method of share purchase or acquisition; the manner of shareholding; the provision of the sale or transfer of shares; the-extension of the employee ownership; the share concentration; the role of outside investors and the principles of control. Some organisational researchers, having looked at variations in employee-ownership systems, observed that ownership systems employ different degrees of employee ownership and employee control. Some are built around employee ownership,
some emphasise employee control and others emphasise both ownership and control dimensions. Because the term ESOP cannot be precisely defined and may be understood in different ways by different practitioners, it was decided in this study to define an ESOP as a company arrangement in which employees hold rights to company equity, information and influence. In other words, shares are made available to all employees who wish to participate and the company helps them to buy the shares. This scheme can have unique features based on an individual company's needs.
The employee share ownership scheme (ESOP) concept was developed in the 1950s by Louis Kelso a San Francisco lawyer and investment banker, who argued that the capitalist system would be stronger if all employees, not just a few shareholders, could share in ownership of capital producing assets. He believed that the best way to accomplish this goal was to create a corporate mechanism, turning workers into owners. Kelso tried, over a number of years, to convince companies to use this plan by suggesting that productivity would improve and that they could achieve tax breaks.
The ESOP scene is no longer new to South Africa. A small number of companies have introduced ESOPs in South Africa. There is a lot of publicity surrounding the idea of ESOPs and around each new issue of shares to employees.
The empirical findings revealed that perceptions of ESOPs can be enhanced by improving trust between employees and management. Reliable management positively influences, the employee perceptions of ESOPs. Employees appreciate and believe in the union that responds to their demands and shares information that is of importance to the members with regard to ESOP matters. This leads to positive perceptions of ESOPs. It is concluded that providing adequate training and empowering employees with more responsibility in their working environment positively influences employee perceptions of ESOPs. This leads to stronger organisational commitment which, as shown by a lot of studies, has beneficial outcomes for business firms, including enhanced profitability.
This study" revealed that trustworthy management positively influences employee perceptions of ESOPs. Trust in management can be enhanced by sharing useful information with employees, by understanding each other's needs and by dedicating time for employees and resources to serve each other better. Trust must however be earned through a partnership built on a relationship where management demonstrates a sincere attempt at caring for employees in their place of employment, thereby providing security.
This study revealed that employees have confidence in reliable management. Management can maintain this by improving communication between employees and themselves. For example, management must communicate the financial benefits of the ESOP lo the employees ai the time of it's establishment, with periodic updates as required.
The responsiveness of unions facilitates a positive relationship between employees and an ESOP once the employees believe in and are confident that the union representing them is willing to act in its members best interests. Although the study reveals that the lack of information by unions with regard to the benefits and financial position of ESOPs has no significant direct influence on employee perceptions of ESOPs, this does not strain the relationship between unions and their members. This means that if employees believe that the union representing them always passes on and shares ESOP information that might be useful with them, employees will perceive the ideas of management with regard to
ESOP matters as genuine.
The results of this study also indicate that unions may willingly allow their members to participate in ESOP matters once they have overcome their doubts about the reality and existence of ESOPs. It must be taken into consideration that when employees believe the reality and existence of ESOPs, this goes beyond the possession of a share in the equity of a company. Management must be deeply committed to the concept of employee ownership and this can only be possible if an employee-ownership system is implemented.
Based on the results of this study, it is believed that employees feel more capable to meaningfully contribute to the well-being of the company when they are adequately equipped with the required and necessary skills to solve their daily problems and have a positive view of ESOPs. These companies should reflect that ongoing education and training in socio-political issues, business awareness (including company financial and performance reports) and people management (leadership skills) are the major success factors in a company. Those processes are fundamental in exposing those who lack
understanding and knowledge of the meaning of ESOPs and how ESOPs operate.
Based on the results of this study, it can be concluded that overall employee empowerment promotes a situation in which employee involvement initiatives with regard to ESOP matters obtain the full support and encouragement of management. Once employees feel empowered, are held responsible for initiating tasks and contributing to the company's performance, they perceive ESOPs positively.
Empowering employees can speed up decision-making processes and reaction times. The creativity and innovative capacities of employees can be released through empowering employees by affording them more responsibilities. Based on this premise, employees can gain a greater sense of achievement in terms of being a share owner (owning a part of the company) and being able to carry out more responsibilities with minimum supervision from management. Managers can empower employees not by giving up control, but by changing the way control is exercised. Although they have to learn to trust their
subordinates, delegate more authority.and allow individuals and teams more scope to plan, act and monitor their own performance, managers still retain responsibility to provide guidance and support to their staff as required.
The finding that share ownership does influence organisational commitment is based on other aspects as well, meaning that organisational commitment can be further enhanced by employee trust in management with regard to ESOP matters. This study has also revealed that unreliable management of ESOPs can lead to a lack of organisational commitment. To enhance organisational commitment, unions. have to be quick in responding to members' demands with regard to iriformation sharing about ESOP matters. In other words, both management and employees must pressurise unions to share information regarding ESOP matters. Working environment aspects such as, on-the-job training and empowerment based on responsibility, create a favourable environment for organisational commitment to take place.
However, ESOPs can only find acceptance among employees if they are accompanied by certain elements which enlighten employees as to the actual meaning of and reasons for their implementation. Companies wishing to implement ESOPs, and those who have already done so, must therefore, practice enlightened labour policies and explain the actual contents of ESOPs. Before an ESOP is introduced, employees need to be familiarised with the reasons for their involvement because they are often left out of certain aspects relating to share ownership schemes.
To summarise: Employee share ownership schemes or plans can only yield the positive outcomes summarised in this study if employees have a positive attitude towards ESOP's. No study has ever been done to assess which variables influence employee attitudes towards ESOPs. Given South Africa's unique historical background this study makes valuable contribution in identifying the managerial and work environment variables that managers who want to enhance the effectiveness of ESOPs should concentrate their efforts on.
Description
Thesis (Ph.D.(Business Managment))--University of the Free State, 2000
Keywords
Employee Share Ownership Schemes (ESOPs), Profit sharing, Employee ownership, Employee participation