The Psychology of Employee Ownership – why does it work?
As long ago as 1991, researchers have suggested that employee ownership could induce a sense of psychological ownership; influencing employee behaviours and attitudes. Further research demonstrated that feelings of ownership are “natural to humans,” and can develop into a variety of different things. The authors went on to define psychological ownership as a state of mind ‘in which individuals feel as though the target of ownership or a piece of it is “theirs”’ (i.e. it is mine). The core of psychological ownership is the feeling of possessiveness or of being psychologically “tied” to an object. A sense of ownership can come from actual ownership, which in turn can affect attitudes and behaviours, then business performance.
On the other hand, a lack of awareness of the impact of an employee’s actions on the value of shares, possibly due to insufficient information from management, is likely to render the line of sight between individual performance and rewards in the form of share ownership rather blurred.
The underlying model and theory behind the ladder to equity model we utilise with clients is listed below and is covered in more detail in a past blog post here.
- Employee – earning income (salary/wage/hourly rates).
- Income model – the first step on the ladder then is to boost that income – paying bonuses, commissions on sales, incentives.
- Profit share – providing a share of profits to employees as an additional incentive.
- Equity – employee transitions into an equity ownership position within the business they work for.
- Control – employees end up in a position of control – acquire a seat on the board, take over management or CEO role.
The model looks to gradually introduce equity ownership; moving employees through the business model, understanding the financial operation of the underlying business, measuring and focusing on key performance indicators (KPIs) and being rewarded based on the achievement of those KPIs which drive profit and performance.
If you’d like to discuss introducing an ESOP within your business, please get in touch with one of our Accredited Advisers.