Employee versus conventionally-owned and controlled firms: an experimental analysis

Abstract

Full employee ownership, under which employees enjoy dominant ownership and control rights, is an innovation which alters the relationship between employees and the organization in which they work. Although it has been hypothesized to have a number of positive implications, it has suffered from poor diffusion and survival rates overall, and selection biases have limited the generalizability of field research. We have therefore attempted to develop experimental methods to test hypotheses about the effects of employee ownership on selected economic, social, and psychological outcomes. In our experiments, subjects in employee‐owned firms exhibited higher productivity, perceived greater fairness in the pay they received and the method used to pay them, reported higher levels of involvement in their tasks, had more positive evaluations of their supervisors, and showed a greater propensity to interact with and provide assistance to their co‐workers than did those in employee‐owned firms. Four areas where further research is needed are identified; these will refine our understanding of employee ownership and the conditions under which it will operate as hypothesized. © 1998 John Wiley & Sons, Ltd.

Do Broad‐based Employee Ownership, Profit Sharing and Stock Options Help the Best Firms Do Even Better?

“…Apart from explicitly controlling for prior employee performance, one field experiment implemented random assignment of profit sharing at 3 of 21 establishments within a firm, finding that the performance of those establishments improved relative to the control group (Peterson and Luthans ); also, laboratory evidence using a true experiment found higher productivity among subjects organized into employee‐owned ‘firms’ (Frohlich et al . ). These studies indicate that while the ‘best firms’ may attract higher‐quality employees in general, there is no evidence that this is systematically related to group incentives, so that employee self‐selection is unlikely to represent a serious bias in estimating the effects of group incentive plans on employee behaviours and firm performance.…”

Strong reciprocity and team production: Theory and evidence

“…Self-policing based on residual claimancy appears to be effective in the regulation of common pool resources such as fisheries, irrigation, and grazing lands (Ostrom, 1990), in the regulation of work effort in producer cooperatives (Greenberg, 1986;Craig and Pencavel, 1995), and in the enforcement of non-collateralized credit contracts (Banerjee et al, 1994). Experimental studies (Frohlich et al, 1998) provide additional support for the effects of residual claimancy in inducing lower supervision costs and higher productivity in (small) work teams. Further, the fact that residual claimancy may provide incentives for self-policing even in quite complex settings and large groups is suggested by evidence that in the United States home ownership is a significant predictor of participation in community organizations (Glaeser and DiPasquale, 1999) and local politics but, significantly, not national politics (Verba et al, 1995), as well as a willingness to sanction coresidents who transgress social norms (Sampson et al, 1997).…”

Entrepreneurs and the context of cooperative organizations: A definition of cooperative entrepreneur

“…From experimental economics, Frohlich, Godard, Oppenheimer, and Starke (1998) analyzed the economic, social, and psychological outcomes of employee-owned versus conventionally-owned firms. From experimental economics, Frohlich, Godard, Oppenheimer, and Starke (1998) analyzed the economic, social, and psychological outcomes of employee-owned versus conventionally-owned firms.…”