New Study Links Worker Pay to Firm Performance and Asks the Question: Do These Firms Perform Better?

A new National Bureau of Economic Research (NBER) Study by Professor Joseph R. Blasi (Rutgers University), Dr. Richard B. Freeman (Harvard University and NBER), and Professor Douglas Kruse (Rutgers University) analyzes connections among shared capitalism compensation practices, labor practices, worker assessment of workplace culture, turnover rates, and firm performance. The information and companies in the study were taken from the “100 Best Companies to Work for in America” competition, covering the years 2005 – 2007.

To read the full paper, please use this link: http://www.nber.org/papers/w17745.

This study shows that companies with some form of shared capitalism (ESOPs, profit and gain sharing/broad-based stock options) have a better return on equity (ROE) and lower turnover rates among employees.

Interesting findings from the report:

Companies that used shared capitalist models of compensation have polices that allow greater employee participation in decisions and greater information sharing than other companies, and have more positive workplace culture that other companies.

The combination of compensation models that share ownership and profits and policies that empower employers and create positive workplace cultures increase employee intent to stay with a company, lowers voluntary turnover, and raises return on equity.

“While the study does not center on the ESOP model of shared capitalism exclusively, we were pleased to see the positive results,” said J. Michael Keeling, president of The ESOP Association.

“When looking at workplace practices and culture in shared capitalism models, the ESOP model showed the most significant impact in the following categories: high trust supervision, participation in work decisions, management shares information, team feeling, people cooperate, do extra to get job done, fair share of profits, and all in all a great place to work,” said Keeling. “Those are impressive figures.” (See chart on page 24 of study for more information.)

The study found voluntary turnover rates were lower in firms with high shared capitalism. It was predicted to drop from 17.6% to 6.3% as empowerment of employees went up. (See graph on page 20 of study for more information.)

“We know, anecdotally from our members that this happens when a company empowers employee owners, but it’s great to have a study to point to,” said Keeling. “In fact, this comprehensive study looking at approximately 400,000 worker surveys and 800 corporations supports The ESOP Association’s mantra that ESOP companies, in the vast majority of instances, are more productive, more profitable, providing locally-controlled jobs.”

In this particular study, 17.6% reported an ESOP, 18.1% reported cash profit/gain sharing, 22.3% reported a deferred profit sharing plan, and 44.5% reported stock options granted in the past year.

Funding for the project was supported by a grant from the Alfred P. Sloan Foundation School of Management and Labor Relations at Rutgers University and by the Foundation for Enterprise Development.

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