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How Does Share Ownership Affect Employee Behaviour?

Evidence from a Multinational Corporation

By

Alex Bryson* and Richard Freeman**

*National Institute of Economic and Social Research and Centre for Economic Performance

**Harvard, National Bureau of Economic Research and Centre for Economic Performance

Abstract

We exploit variation in share plan participation in a multinational firm to examine the

relationship between share ownership and employee behaviour. We find membership of the

firm's share plan is associated with a number of employee behaviours which enhance labour

productivity including lower quit rates, lower job search, lower absence from work, and greater

work effort. In contrast to the recent literature, we find little evidence of a link between share

plan participation and more worker co-monitoring. The size of these effects tends to rise with

the extent of plan participation as indicated by time in the plan, monthly contributions made,

and number of shares held. Instrumenting for plan membership with lagged plan membership in

the employee's office and business division suggests treatment of membership as exogenous

understates the causal impact of share plan participation.

Key-words: share ownership; job search; quits; sickness absence; effort JEL-codes: J24; J33; J54; J63; M52 Acknowledgment: We thank ShareCo (a pseudonym) for their collaboration with this survey. Alex Bryson

acknowledges the support of the British Academy for this research through the award of a British Academy

Research Development Award (grant number BR100020). Corresponding author: Alex Bryson, e-mail:

a.bryson@niesr.ac.uk.

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1. Introduction

More employees are receiving part of their compensation in the form of shares from their

employer (Kruse et al., 2010 for the US; Pendleton et al., 2009). Many studies suggest firms that

do so are achieving higher labour productivity. Productivity effects may come via improved

employee welfare, better work incentives, or both. However, evidence of share plan effects on

employee behaviour remains scarce.

If the net welfare effects of share ownership were unambiguous one might anticipate worker

sorting across firms with and without share plans and high share take-up among those choosing

to enter share plan firms. However, empirical evidence indicates that share plan take up among

eligible employees is well below 100 per cent even though the financial benefits of participation

appear clear-cut (Pendleton et al., 2009; Bryson and Freeman, 2010a). In this paper we exploit

variation in share plan participation in a multinational firm which offers a very similar share plan

to nearly all of its employees. Our survey covers employees in four of the countries the firm

operates in.

In contrast to much of the literature we investigate the extent of employee participation in the

share plan in terms of time in the plan, the number of shares held and monthly contributions to

the plan. We also know where employees work, enabling us to identify the role of peers located

in the same office and business unit. We find membership of the firm's share plan is associated

with a number of employee behaviours which enhance labour productivity including lower quit

rates, lower job search, lower absence from work, greater work effort and more worker co-

monitoring. The size of these effects tends to rise with the extent of plan participation as

indicated by time in the plan, the number of shares held and the size of monthly contributions.

The remainder of the paper is structured as follows. Section Two reviews the theoretical and

empirical literatures linking share plan participation to employee behaviour. Section Three

introduces our data. Section Four outlines the empirical strategy. Section Five reports our

results and Section Six concludes.

2. Theory and empirical evidence

There are a number of reasons why share plan participation may positively influence employees'

labour productivity. Tax-privileging of employee shares and firms' own generous share option

policies mean employees may view share plans as a form of asset transfer akin to a fringe benefit.

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As such, share plans may improve employee welfare thus enhancing the value of a job match

relative to one in a "like" firm without a share plan. This, in turn, may improve job satisfaction,

lower incentives to search for work elsewhere and thus lower quits. If viewed as a "gift" from the

employer, employees may seek to reciprocate by offering additional effort or commitment to the

firm (Akerlof, 1982). Employees may also value share plans if they reward effort. This may

happen where individuals' efforts have a sizeable effect on the firm's share price, and where

those efforts are not undermined by free-riding behaviour of co-workers. This collaborative

behaviour in which employees seek to enforce behavioural norms may influence other

dimensions of effort such as the propensity to take sick leave.

However, in making a part of pay contingent on firm performance employers are sharing risk

with their employees, something for which employees may seek compensation, either in the

form of a higher wage or a greater say in the way the firm operates. This may prove costly to the

firm, potentially eroding any productivity advantage. Furthermore, where employees lack

influence over decisions affecting firm performance the link between pay and firm performance

may have no incentive effects and, if this lack of control induces anxiety this may even impair

worker performance or lead to greater sickness absence. A culture of worker co-monitoring

focused on encouraging greater worker effort may also be viewed negatively by some thus

undermining worker motivation. Finally, some maintain that financial incentives can undermine

intrinsic worker motivation (Frey and Oberholzer-Gee, 1997; Prendergast, 2008).

Early studies identified small or non-significant effects of share plan schemes on firm or

establishment-level productivity and performance (see Bryson and Freeman, 2007 for a review).

Authors have suggested these small effects of share ownership on firm performance may be due

to typically small ownership stakes, or to the indirect nature of the link between individual effort

and company performance. However, these studies often relied on crude measures of share

ownership - usually an indicator of whether a scheme exists. The measures used often conflate

different types of financial participation, overlooking the possibility that they may produce very

different effects. More recent establishment-level studies distinguishing between types of

scheme point to heterogeneous effects (Brown et al., 1999; Bryson and Freeman, 2010b).

Data on the proportion of stocks or assets held by employees, the proportion of employees who

participate in ownership, the inequalities in ownership stakes among employee-owners, and the

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prerogatives and rights that ownership confers on employees are usually unavailable.1 Without

taking these factors into account, it is very difficult to establish how employee ownership affects

employee behaviour and thus company performance. It is for this reason that the National

Bureau of Economic Research undertook a large project on share ownership. The study, the

findings of which are reported in Kruse et al. (2010), is based on dedicated surveys of over

40,000 employees from 323 worksites in fourteen share plan firms operating in the United States.

Focusing on the links between share plan participation and employee behaviours the study

identifies some mechanisms by which share plans can have a causal impact on company

fortunes.

First, it appears that the free-rider problems which may compromise share plan incentive effects

are ameliorated somewhat by co-worker monitoring (Freeman et al., 2010). If each worker is

forced to choose whether to work harder, or shirk, without knowing how other workers will

behave, and extra effort is not considered desirable, workers may choose to shirk.2 However, if

workers are faced with this choice repeatedly in a repeat game scenario workers may choose to

punish or ostracize shirkers (Weitzman and Kruse, 1990). The implication is that share plans can

harness peer group behaviours which are potentially productivity-enhancing.

Second, within-company fixed effects models identify positive independent associations between

employee participation in what the authors call "share capitalism" schemes - by which they mean

profit-sharing, gain-sharing, and share plans - and an array of employee behaviours and attitudes

which are beneficial to firms including lower quit intentions; a lower probability of job search; a

greater tendency to make suggestions to improve firm efficiency; greater loyalty and commitment

to the firm; employee perceptions of higher discretionary effort on the part of co-workers; and a

greater willingness to work hard for the firm (Blasi et al., 2010). These associations were also all

apparent at establishment-level. There was quite a bit of heterogeneity in the effects of specific

schemes, but in nearly all cases one or more forms of "share capitalism" were associated with

effects which are favourable from firms' perspectives.

1 These measures are more common in studies of worker ownership in cooperatives. However, the literature on the performance effects of financial incentives on individuals suggests they can be non-monotonic. Very high rewards can be detrimental to performance, consistent with workers "choking under pressure" (Ariely et al., 2009) while others find high rewards can elicit greater effort, conditional on the reward being offered, but the simple fact of offering such an award can prove detrimental to performance (Gneezy and Rustichini, 2000). 2 This is the classic prisoner's dilemma (Blinder, 1990).

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The one area where plan participation appeared to have what most might regard as an adverse

effect from a company perspective was an association with higher absence rates.3 This positive

significant association was apparent for some forms of share plan participation and profit

sharing, whereas gain-sharing and individual performance-pay bonuses were negatively

associated with absenteeism. The authors speculate that the effect could be attributable to

employees in share plans feeling a greater sense of job security than other employees, thus

lowering the expectations of employer reprisals for absence-taking. They note that this result,

coupled with the findings of lower turnover in a shared capitalism environment, is reminiscent of

the effects of trade unionism (op. cit.: 147). An alternative interpretation which is linked to

employee feelings of security is that share plan participants may be less likely than other

employees to suffer from "presenteeism" which arises when sick employees, fearful of job loss

or employer reprisal, turn up for work even when they are not fully fit. Whatever the reasons for

the association, it is not apparent in earlier studies (eg. Hammer et al., 1981; Brown et al, 1999).

There are other mechanisms by which share plans can induce better worker performance that are

not discussed in the NBER study. For example, share plans may directly influence worker effort

through loss aversion. Recent empirical evidence that variable pay, when framed as loss, is

associated with increased worker effort and performance, is consistent with prospect theory's

emphasis on loss aversion (Merriman and Deckop, 2007). Peer effects are also potentially

important because they influence an individual‟s propensity to participate in company share plans

(Bryson and Freeman, 2010a) just as they appear to influence other work-related investment

decisions (Duflo and Saez, 2002). But peers also influence other productivity-related employee

behaviours which we are investigating. For example, Babcock et al. (2011) find team-working

influences individual employees' efforts while Drago and Wooden (1992) show employee norms

affect absence rates via workgroup cohesion which, they argue, “is a precondition for the

establishment of workgroup norms” (op. cit. p.772).

We test six propositions about the links between share plan participation and employee

behaviour which stem from the discussion of theory and empirical evidence above. We begin

our analyses by focusing on the extensive margin of employees' labour supply. First, we consider

the proposition that employees value share plans in a way that can influence their attachment to

the firm. We do so via a simple thought experiment. We examine employee responses to a

3 If anything, one might expect what Coles et al. (2007) term the "shadow price of absenteeism" to be higher in share plan firms than other firms since they are more liable to be engaged in processes which rely on employee complementarities than non-share plan firms.

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question which asked them what pay increase, if any, would be required to induce them to take

the same job in a like firm which did not have a company share plan. Second, we see whether

share plan participation is associated with a reduced likelihood of quitting using two measures of

quit intentions, namely the likelihood of leaving the firm in the coming year and employees' own

perception that the Plan reduces their chances of leaving the firm. Third, we test the proposition

that share plan participation reduces the likelihood of looking for another job in the coming year.

Then we turn to employee effort at the intensive margin. The fourth proposition we test is

whether share plan participation is associated with employees' perceptions that they work harder

than their co-workers. Fifth, we see whether we can replicate Freeman et al.'s (2010) finding that

share plan participation leads to a greater propensity to monitor co-workers' efforts. Finally, we

explore the link between share plan participation and absenteeism which, since it entails not

turning up for work, might be thought of as one aspect of the extensive margin of employee

effort, albeit one which is more difficult to interpret given the involuntary nature of many

sickness absences.

The paper builds on the empirical approach adopted in the NBER Share Capitalism project

using dedicated survey data to explore the relationship between share plan participation and

employee behaviours. Unlike the NBER study which focuses on firms in the United States, we

assess share plan effects for a single firm across four countries including the United States. For

the UK only we are also able to utilise historical information on share plan participation by office

and business unit to establish whether the associations between plan participation and employee

behaviour are causal.

3. Data

In 2007-2008 we surveyed 3,360 employees of a multi-national firm ShareCo that offers a similar

share plan to employees around the world. The firm distributed the survey through the internet

to employees in Australia and New Zealand, South Africa, the UK and Ireland and the United

States.4 The response rates for the survey were 65% in the UK and Ireland, 62% in Australia and

South Africa and 35% in the USA. The data covers 19 business divisions and 39 office locations.

Dividing workers into groups based on the intersection of division and location to obtain a

closer fix on likely “work groups” where employees may interact regularly, we obtain 81 work

units with one or more person.

3 Because the Plan differs modestly across countries we used variants of the survey instrument in each country but the differences were so slight that we pool the country responses into a single firm data set.

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For most employees the share plan ought to be financially attractive. We illustrate this with

details of the plan in Australia. In Australia all permanent employees resident for tax purposes

could choose between the Exempt Plan, which seemed most suitable for lower paid employees

and the Deferred Plan, which seemed more suitable for high paid employees. The Exempt Plan

allowed employees to contribute up to AU$500 per annum in before-tax salary to acquire shares,

which ShareCo matched up to a maximum of AU$500 per annum. The shares were free from

taxation on acquisition up to AU$1,000. An employee who held the shares for at least three

years could sell or transfer them tax free. Thus a worker who bought AU$500 shares and held

them for 3 years would double their money if the share price held steady. The price would have

to drop by half before the employee would lose money. The Deferred Plan allowed employees to

contribute between AU$1,500 and half of their before-tax annual salary to acquire shares.

ShareCo matched contributions up to AU$3,000 per annum. The government deferred income

tax on share acquisition and did not tax employee bought shares on sale/transfer for one year

and did not tax shares given to employees by ShareCo matching their purchases for two years. A

worker who bought AU$3,000 and held them for two years would double their money if the

share price held steady and again break even if the price fell to one half its purchase price

The pecuniary incentive to join the share plan differs in the other countries where ShareCo

operates because the firm offers different matching rates to workers and because each country

gives different tax advantages for ownership. In the UK the company matches shares purchased

by the employee one for one up to a limit. The scheme qualifies for tax advantages as a Share

Incentive Plan (SIP), whose tax advantages are comparable to those in the Australian tax code.5

In South Africa the matching scheme resembles the Australian deferred plan and thus seems

more suited to higher wage workers. Employee contributions come from after-tax income and

the employer match is subject to income taxation (which the company pays) while the gains from

sale are subject to capital gains tax.6 All of which makes the scheme less valuable to workers than

5 Under the UK SIP scheme employees can contribute a minimum of £10 each month up to a maximum amount of £125 or 10 per cent of their monthly pre-tax earnings; whichever is the lower amount. This sum is tax-exempt. ShareCo matches each share purchased up to a value of £125 per month. All shares acquired by the employee are exempt from tax if held for five years. 6 The South African deferred Plan allows permanent employees to contribute at least Rand 1,800 per annum up to 50 percent of their after-tax salary to acquire shares under the Plan. The company matches each Rand contributed by the employee up to a maximum of Rand 24,000 per annum to purchase matched shares. The shares purchased by the employee vest after the first year and the matching shares from the company vest after the second year. Monthly contributions are deducted directly from the employee‟s after-tax monthly salary and thus are not tax privileged as the shares are acquired with after tax money at their full market value. Matching shares are subject to taxation which the employer pays

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the Australian and UK schemes. In the US the company has the smallest matching incentive – a

15% discount on the market price of every purchase up to a maximum of US$1,990, which is

considerably below the 50% subsidy implicit in the matching schemes. A share price fall of 15%

or more means that US members of the plan lose money.7

If the individual's reward for his or her better performance falls with the size of the firm, share

ownership has more potential to be effective in a small firm with fewer workers. ShareCo is a

medium-sized firm which had around 11,500 full-time equivalent employees worldwide in 2007,

suggesting that firm size alone is unlikely to adversely influence the impact of the share plan on

employee behaviour. If it is the mere existence of the performance-pay link, rather than size of

pay-out, which is crucial in determining performance outcomes, then firm size may not be

relevant at all.8

It is not possible to extrapolate from this study alone to infer behavioural effects which might

occur if non-share plan firms were to adopt share plans. This is because those entering share

plan firms are likely to be a non-random subset of all employees if more able workers sort into

firms offering financial incentives such as share plans (Bishop, 1987; Mitchell et al., 1990;

Prendergast, 1999). However, for this very reason employees found in a single firm are likely far

more homogeneous than employees across firms so that when we compare the behaviours of

plan participants with those who choose not to participate in the firm's share plan our estimates

of share plan effects on behaviour are less likely to suffer from omitted variables bias than those

based on multi-firm employee surveys. By focusing on a single firm we also screen out across-

firm omitted variables bias.

To explore the causal impact of share plan participation on employee behaviour we use the

second wave of the survey which was conducted in the UK only in 2010. The survey, which

achieved a 69% response rate, is nearly identical to the one conducted in the UK in 2007. We

use these data in conjunction with data on business plan participation in all offices and business

upfront, so that the employee is not liable for income tax. However, when employees sell their shares they are subject to capital gains tax. A second share plan awarded employees 50 shares free of charge in 2005. 7 The US plan was open to all full-time employees who work at least 20 hours per week and more than five months in a calendar year. Employees may contribute between $10 and $800 per month of their gross salary through a payroll deduction. 8 In any case, if larger firms are more profitable on average than smaller firms, large-firm workers may receive larger pay-outs than small-firm workers, even if small-firm workers receive a higher proportion of their firm's profits.

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units over the period 2007-2010 to estimate the causal effect of plan membership on behavioural

outcomes of UK ShareCo employees.

4. Estimation

We run models for a number of different employee outcomes. First we examine whether plan

participation is associated with a reduced likelihood of quitting using two measures of quit

intentions. The first is a (0,1) dummy variable, modelled using probits, identifying those

employees who say they expect to work at ShareCo for less than one year, and that it is “not very

likely” or “not at all likely” that they will be laid off in the coming year. Second, to help make

some causal inferences about the role of plan participation we estimate ordered probit estimates

for employees' own perception that the share plan reduces their chances of leaving the firm.

Third, we run ordered probit estimates to test the proposition that share plan participation

reduces the likelihood of looking for another job in the coming year. Fourth, we run OLS

estimates to test the proposition that share plan participation is associated with employees'

perceptions that they work harder than their co-workers. Fifth, we estimate OLS models to see if

plan participation is related to employees‟ propensity to monitor co-workers' efforts. Finally, we

run a variety of models to explore the link between share plan participation and absenteeism.

For each dependent variable we also run linear estimation counterparts with office/business unit

fixed effects to estimate plan participation effects on employee behaviours within the

office/business units in our data. By conditioning on unobservable fixed elements of the

working environment which might induce plan participation and other employee behaviours we

obtain a „cleaner‟ association between the individual‟s plan participation and his or her behaviour.

We run two model specifications. The first shows the raw correlation between the plan

participation measure and the outcome of interest. The second then conditions on a range of

personal and job-related characteristics. These are: age (5 dummies); male; black; degree;

professional qualification; household status (3 dummies); occupation (7 dummies); supervisory

status; hours worked (4 dummies); tenure (5 dummies); workplace recently acquired by ShareCo;

employee perception of % Plan membership in business unit; how closely monitored; how easy

to monitor others; and country location (4 dummies). In the case of the fixed effects models we

only present estimates with demographic and job controls.

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Our data permit analyses at work unit level too. These units, which proxy groups of employees

who work in close proximity to one another, identify employees working in the same offices and

the same business division or business unit. We run scatterplots and fit a regression curve to

explore the links between plan participation and employee behavior at office/business unit level.

We focus on the 81 office/business units with multiple employee observations: the minimum

number of observations is 3, the maximum is 397, the mean is 38 and the median is 18.

Throughout we examine four dimensions of plan participation: plan membership, captured with

a dummy variable; years as a plan member; number of shares held; and monthly contribution to

the share plan (in $US). The last three measures are derived as categorical variables which are

explained in the notes below the tables presented in the next section.

To explore the causal impact of share plan participation on employee behaviour we use the

second wave of the survey which was conducted in the UK only in 2010. Because the survey

data are nearly identical to those collected in 2007 we are able to run similar models to those run

on the 2007 data. In these analyses we instrument for employees' share plan membership in 2010

using lagged membership in their office/business unit in previous years. Below we present

results which use the office/business unit membership rate in 2009, one year prior to the 2010

survey. This variable strongly predicts individual share plan membership in 2010 (the coefficient

for this variable is significant at a 99.9% confidence level in the first stage membership equation).

The identification assumption is that, although employees will be influenced by the history of

share plan membership among their close colleagues working in the same office and business

division, once we condition on employees' own perceptions of the current membership rate in

the business unit in 2010, lagged membership will have no additional effect on behaviours such

as job search and working hard in 2010.

5. Results

To establish whether employees value the firm's share plan in a way that can influence their

attachment to the firm we conduct a simple thought experiment. We ask employees: "Assume

another firm offered you the same job that you currently hold but the firm had no share plan,

what pay difference would be necessary to take that job?" with pre-coded responses ranging

from "no difference" to "at least a 25% increase" and a final code "I wouldn't do it". The

majority of employees say they would need a wage hike to move, which is not surprising given

the costs entailed in a job switch (Table 1). However, over four-in-ten say they would need a

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wage hike of at least 15%, indicating quite an attachment to ShareCo as a firm. Furthermore,

members are significantly more likely to say they would need a financial inducement to move

compared with non-members. If we assume that most individuals will switch to "like" jobs

elsewhere if offered enough money, it is not surprising to find no significant difference between

members and non-members in the percentage saying they would need at least a 25% increase to

move. Rather, the differences are apparent in the 5-20% increase domain. The difference

remains large and statistically significant having controlled for demographic and job

characteristics, and it is present within office/business units as well. The association is more

pronounced among those who have been in the share plan longer, those with a larger number of

shares, and those making larger monthly contributions to the plan.

[INSERT TABLE 1 ABOUT HERE]

Around six percent of ShareCo employees expected to leave the firm voluntarily within 12

months. Share plan members were significantly less likely to expect to quit than their non-

member counterparts, an effect that strengthens when conditioning on demographic and job

characteristics (compare Models (1) and (2) in Table 2). However, the association is not

statistically significant for those who had been plan members for less than two years, those with

small shareholdings (under 100 shares) and those making the smallest monthly contributions to

the plan (less than $70 per month). The association is most pronounced among those who had

been in the plan the longest and those with the largest share holdings. Monthly contributions of

over $70 were associated with lower quit probabilities but there was no further reduction

associated with large contributions of $200 or more. Very similar results emerge from the fixed

effects models, indicating that the results hold within office/business units. However, the

association between quit expectations and plan participation at office/business unit level is not

particularly strong (Figure 1).

[INSERT TABLE 2 ABOUT HERE]

Asked whether the ShareCo share plan "reduces the chance that you will leave the firm" half

(52%) of plan members answered “to some extent” or “to a great extent”. Although the

percentage of non-members giving these answers was considerably smaller (36%) it is certainly

far from negligible and may point to some positive spillovers from being a share-owning firm,

even among those who have (yet) to join the plan. This association becomes more pronounced

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once demographic and job characteristics are controlled for, and there is a broadly monotonic

increase in the size of the effects with the time in the share plan, the number of shares held and

the size of monthly contributions to the plan. Very similar results are apparent within

office/business units.9

Asked "how likely is it that you will actively look for a job with another organization in the next

12 months?" one-in-twenty employees were already looking and another one-in-twelve thought it

was "very likely". At the other end of the spectrum one-quarter said it was "not at all likely".

Plan members were significantly less likely to expect to be seeking work elsewhere in the coming

12 months, an association which was largely unaffected by controls for demographic and job

characteristics (Table 3, models 1 and 2). This association between lower job search and plan

membership was only apparent for those who had been in the plan for a year or more: job search

among those in the plan for less than one year was no different to non-members' job search

expectations. Furthermore, job search expectations did not vary significantly among members

who had been in the plan for at least a year. Those with larger share holdings were less likely to

expect to be seeking work elsewhere, though there was no difference between those with 500-

1,999 shares and those with 2,000 or more shares. The association with monthly contributions

was also non-linear: those spending at least $70 per month on their share plan were less likely

than others to be seeking work elsewhere, but larger contributions were not associated with

further reductions in job search expectations. Some offices or business divisions may be less

congenial to work in than others and, if this is associated with the propensity to join the share

plan, this makes it difficult to draw inferences about the role of plan participation on job search.

However, this concern can be discounted since the office/business unit fixed effects models

produce similar results.

[INSERT TABLE 3 ABOUT HERE]

The evidence presented above suggests share plan participation is associated with the extensive

margin of labour supply, but how is it related to the intensive margin as indicated by how hard

employees work, worker co-monitoring and absenteeism.

Asked “How hard would you say you work?” plan members rated themselves a little higher than

non-members (8.80 versus 8.68 on a 1 to 10 scale where 10 is “very hard"). Although the

9 These estimates are available from the authors on request.

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difference is statistically significant at a 95% confidence level. Later in the survey employees were

asked “At your workplace, how hard would you say that people work?”, with responses coded

on the same scale as above. Members rated others‟ work effort below the rating given by non-

members (mean scores of 7.48 and 7.60 respectively, statistically significant at a 90% confidence

level). By subtracting the hard work score workers give to their colleagues from the score they

give themselves one can produce a measure of how hard workers think they work relative to

their colleagues. Members were more likely than non-members to rate themselves above the hard

work rate they gave others (1.31 versus 1.09 on a scale running from -10 to +10, statistically

significant at a 99% confidence interval). This membership differential is apparent having

controlled for demographic and job characteristics (Table 4). However, the effect is only

statistically significant in the first year or two of plan membership; the number of shares held are

not jointly significant; and the effect is confined to members making very large monthly

contributions to the plan of $200 or more.

[INSERT TABLE 4 ABOUT HERE]

One reason why plan membership effects are not so striking in the analysis of working hard is

that members tend to be concentrated together. This is borne out by the fact that perceptions of

high plan membership in one's business unit are negatively associated with employee perceptions

that they are working harder than their colleagues. It may also explain the weaker plan

participation results in the office/business unit fixed effects models (Models 9-12 in Table 4).

Membership remains statistically significant in the fixed effects models, albeit at a 90%

confidence level, and large monthly contributions are still significantly associated with the belief

that one is working harder than colleagues. Length of time in plan membership and the number

of shares held are not associated with perceptions that one is working harder than one's

colleagues once fixed effects are introduced.

[INSERT FIGURE 2 ABOUT HERE]

The scatterplots for working harder than colleagues and plan participation by office/business

unit are also revealing. There appears to be little association between mean membership and

mean perceptions of working harder than colleagues, but there is a clear positive association

between the mean monthly contributions paid into the plan and how hard employees think they

are working. One interpretation of this result is that sizeable contributions to the share plan and

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making additional efforts at work above those of colleagues are both indicators of a strong

commitment to the firm. Another interpretation is that large plan contributions imply bigger

financial pay-offs to the worker, thus raising incentives to work harder.

As noted in Section Two, the recent literature points to an association between share plan

participation and worker co-monitoring, while the literature on team working suggests it can

enhance work effort via peer pressures. We asked employees "If you were to see a fellow

employee not working as hard or as well as he or she should, how likely would you be to...discuss

this with the employee; speak to your supervisor or manager; talk about it in a work group or

team; do nothing". Responses to the four questions were coded from "not at all likely" through

to "very likely". We used these data items to construct two measures of co-worker monitoring.

The first is an additive scale running from zero to nine which sums responses to the first three

questions with "not very likely" scoring 1, through to "very likely" scoring 3. The second scale

running from 1 to 4 simply recodes the fourth 'do nothing' question so that those who say they

are 'not at all likely' to do nothing score 1 and those who say they are 'very likely' to do nothing

score 4. Results from both sets of analyses are consistent. In the absence of demographic and

job controls, the measures of plan participation are positively associated with more co-worker

monitoring. However, once we include controls - which include the ease with which one is able

to observe other employees' work efforts - the only significant plan participation effect is the

positive association between making large monthly contributions to the plan ($200 or more) and

co-worker monitoring. This effect is also apparent within office/business units in the fixed

effects regressions.10

Asked "how many days have you been absent from work in the last six months (excluding

vacation)?" the mean number of days absent was 2.6. But two-fifths of employees had had no

absence at all. Among those who had been absent the mean number of days was 4.3. Due to the

skewed distribution of absence we ran tobit models which are presented in Table 5. The

relationship between plan participation and absence is fairly weak. The main robust finding is

the negative significant association between absence and having at least 2,000 shares in the firm.

Paying a sizeable monthly contribution into the plan was also significant, though non-linear.

Membership and time in membership was not statistically significant.

10

Rerunning the estimates without the control for ease of monitoring others produces similar results. Thus the

non-significance of plan participation for co-monitoring does not hang on the inclusion of this control. All

models are available from the authors on request.

15

[INSERT TABLE 5 ABOUT HERE]

Plan participation is not randomly allocated to employees. If factors affecting plan participation

also influence other employee behaviours this may bias our estimates of the effects of plan

participation. A priori it is not obvious which direction this bias may take, but it is plausible that,

if plan participants tend to be more committed and motivated individuals, this may induce an

upward bias in coefficients which seek to capture the pro-productive behaviour of employees.

Results in Table 6 compare OLS/tobit estimates of plan membership with instrumental variables

estimates using lagged membership in an employee's office/business unit to instrument for

his/her own plan membership. We run estimates for six of the outcomes we have already

discussed, but this time the estimates relate to UK employees in the 2010 survey.

[INSERT TABLE 6 ABOUT HERE]

Columns 1 and 2 indicate that the membership coefficient on the probability of a voluntary quit

remains largely unaltered when we instrument for membership. However, the coefficient is less

precisely estimated than in the OLS case. Columns 3 and 4 indicate that membership is

associated with a greater likelihood of thinking that the plan reduces the probability of leaving

the firm in the coming year. The coefficient is larger when we instrument for membership and,

although the estimate becomes less precise, it remains statistically significant. A similar pattern

emerges in columns 4 and 5 with respect to plan members having a lower likelihood of seeking

employment elsewhere in the coming year. Results relating to the intensive margin, namely

working harder and worker co-monitoring, suggest no significant role for plan membership in

either the OLS or IV estimates. The final columns suggest membership is associated with lower

absence but, while the instrumental variables estimate is larger than the tobit estimate, it becomes

less precise and loses statistical significance.

6. Discussion and Conclusions

Members value the ShareCo share plan, as indicated by the percentage of members requiring a

wage premium to move to a "like" job elsewhere compared to non-members. Attachment to the

firm rises with degree of participation in plan, as indicated by time in the plan, the number of

shares held and the size of contributions. This attachment is also apparent in employee

behaviour with more extensive plan participation reducing voluntary quit rates, job search and

absence, and with a greater propensity to work harder than colleagues. However, there is also

16

evidence that low levels of engagement with the share plan make no difference to employee

behaviours. Associations between plan participation and the extensive margin of worker effort -

quits, and job search - are stronger than the associations with the intensive margin - working

harder, worker co-monitoring and worker absence. Similar results emerge when we instrument

for plan membership. However, comparing the IV coefficients with those for OLS/tobits

suggests that treating plan membership as exogenous may understate the extent to which plan

membership is associated with productivity-enhancing behaviour.

Our results indicate that share plans are associated with some productivity-enhancing behaviours

even at low levels of participation, whereas others tend to rely on substantial participation. How

do we interpret these results? Traditional incentive theory would imply monotonic effects of plan

participation whereby employees respond to increasing financial rewards. However, recent

evidence from a number of studies indicates that financial incentive effects are not monotonic,

that employees are motivated by factors other than financial reward, and that, these other

motivations - such as intrinsic motivation to engage in activities - can even be undermined by

financial incentives. What is interesting about share plans is that unlike other compensation

schemes such as individual and group bonuses, they are not pure financial incentives. This is the

case in at least two ways. First, they offer an ownership stake which, although often small, means

the employee has a vested interest in the firm that extends beyond interests associated with the

contract of employment. Second, there is a gift component to share plans where firms offer

matching shares. This component of a share plan may elicit reciprocal effort on the part of the

worker which do not occur with "pure" financial incentive schemes. It may be that share plans

succeed in motivating employees through a combination of the "gift" and financial reward with

the former ensuring that the latter does not simply crowd out intrinsic motivation.

17

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Paying for Productivity. A Look at the Evidence, Washington D. C.: Brookings Institute

20

Table 1: The pay difference necessary to take the same job elsewhere

| member of

q56: pay difference | Computershare Company

necessary to take job | Share Plan

where no share plan | 0 1 | Total

----------------------+----------------------+----------

No difference | 260 208 | 468

| 21.47 13.67 | 17.12

----------------------+----------------------+----------

5% increase | 89 154 | 243

| 7.35 10.12 | 8.89

----------------------+----------------------+----------

10% increase | 192 251 | 443

| 15.85 16.49 | 16.21

----------------------+----------------------+----------

15% increase | 152 218 | 370

| 12.55 14.32 | 13.54

----------------------+----------------------+----------

20% increase | 121 254 | 375

| 9.99 16.69 | 13.72

----------------------+----------------------+----------

At least 25% increase | 207 238 | 445

| 17.09 15.64 | 16.28

----------------------+----------------------+----------

I wouldn't do it | 190 199 | 389

| 15.69 13.07 | 14.23

----------------------+----------------------+----------

Total | 1,211 1,522 | 2,733

| 100.00 100.00 | 100.00

Pearson chi2(6) = 57.6908 Pr = 0.000

1

Table 2: Voluntary Quits

(1) M1

(2) M2

(3) M3

(4) M4

(5) M5

(6) M6

(7) M7

(8) M8

(9) FE1 (10) FE2 (11) FE3 (12) FE4

Member -0.172 * -0.302 **

-0.032 **

-2.23

-3.12

-2.83

Time as Member (ref: non-member)

< 1 year

0.095

-0.120

-0.011

0.80

-0.92

-0.58

1, < 2 years

-0.033

-0.261

-0.027

-0.24

-1.66

-1.30

2, < 5 years

-0.202 * -0.403 **

-0.041 **

-1.99

-3.26

-3.08

5+ years

-0.653 ** -0.667 **

-0.057 **

-3.77

-3.18

-3.81

N shares held (ref.: none)

<100

0.110

0.021

0.005

0.93

0.16

0.27

100-499

-0.163

-0.332 **

-0.034 *

-1.47

-2.64

-2.39

500-1999

-0.233

-0.461 **

-0.051 **

-1.81

-2.93

-3.19

2000+

-0.317 * -0.423 *

-0.054 **

-2.38

-2.46

-3.14

Current monthly contribution (ref.: none)

US$1, <70

-0.068

-0.178

-0.017

-0.71

-1.59

-1.20

US$ 70, <200

-0.401 ** -0.588 **

-0.064 **

-3.19

-4.11

-4.63

US$ 200+

-0.328 * -0.514 **

-0.059 **

-2.55

-3.57

-3.84

Constant -1.448 ** -1.569 ** -1.448 ** -1.657 ** -1.451 ** -1.615 ** -1.428 ** -1.577 ** 0.076

0.067

0.069

0.079

-26.59

-5.12

-26.59

-5.41

-26.04

-5.25

-27.19

-5.15

1.61

1.41

1.47

1.69

r2 0.004

0.121

0.019

0.126

0.010

0.126

0.013

0.131

0.041

0.041

0.043

0.046

N 2642

2642

2638

2638

2598

2598

2642

2642

2642

2642

2642

2642

Notes:

(1) Dependent variable (0,1) where 1=expects to work at ShareCo for <1 year and layoff 'not very' or 'not at all likely'.

(2) Models (1)-(8) are probits. Models FE (1) - (4) are office/business unit fixed effects models.

(3) Models show coefficients with t-statistics below. * = significant at 95% CI; **=significant at 99% CI or above

(4) Odd numbered models are raw correlations with no controls. Even numbered models contain controls (see text).

2

Table 3: Job Search

(1) M1

(2) M2

(3) M3

(4) M4

(5) M5

(6) M6

(7) M7

(8) M8

(9) FE1

(10) FE2

(11) FE3 (12) FE4

Member -0.185 ** -0.191 **

-0.204 **

-4.39

-3.81

-4.18

Time as Member (ref: non-member) < 1 year

-0.012

-0.122

-0.157 *

-0.19

-1.69

-2.17

1, < 2 years

-0.047

-0.160 *

-0.192 *

-0.63

-1.96

-2.36

2, < 5 years

-0.186 ** -0.216 **

-0.219 **

-3.43

-3.39

-3.56

5+ years

-0.424 ** -0.309 **

-0.277 **

-6.57

-3.73

-3.65

Time as member missing

-1.542 * -0.935

-0.368

-2.52

-1.49

-1.52

N shares held (ref.: none)

<100

-0.116

-0.154 *

-0.171 *

-1.64

-2.14

-2.46

100-499

-0.092

-0.140 *

-0.164 **

-1.59

-2.23

-2.63

500-1999

-0.233 ** -0.315 **

-0.306 **

-3.60

-4.14

-4.25

2000+

-0.334 ** -0.298 **

-0.292 **

-5.32

-3.54

-3.73

N shares missing

-0.392 * -0.381 *

-0.304 *

-2.26

-2.22

-2.04

Current monthly contribution (ref.: none) US$1, <70

-0.107 * -0.081

-0.097

-1.97

-1.40

-1.71

US$ 70, <200

-0.279 ** -0.313 **

-0.301 **

-4.86

-4.81

-4.95

US$ 200+

-0.256 ** -0.312 **

-0.321 **

3

-4.23

-4.19

-4.47

Constant

2.237 ** 2.216 ** 2.234 ** 2.259 **

11.38

11.19

11.31

11.48

cut1 -0.799 ** -0.744 ** -0.806 ** -0.714 ** -0.811 ** -0.728 ** -0.806 ** -0.755 **

-21.66

-4.62

-21.72

-4.42

-21.61

-4.51

-22.18

-4.69

cut2 0.379 ** 0.542 ** 0.381 ** 0.573 ** 0.371 ** 0.560 ** 0.375 ** 0.536 **

10.81

3.38

10.83

3.55

10.41

3.47

10.93

3.34

cut3 0.978 ** 1.192 ** 0.984 ** 1.224 ** 0.972 ** 1.211 ** 0.976 ** 1.189 **

25.56

7.37

25.58

7.53

25.02

7.45

26.01

7.35

cut4 1.447 ** 1.693 ** 1.455 ** 1.724 ** 1.442 ** 1.713 ** 1.446 ** 1.690 **

32.12

10.34

32.05

10.48

31.54

10.39

32.53

10.32

r2 0.003

0.056

0.007

0.056

0.005

0.057

0.004

0.058

0.130

0.130

0.131

0.134

N 2642

2642

2642

2642

2642

2642

2642

2642

2642

2642

2642

2642

Notes:

(1) Respondents asked: "How likely is it that you will actively look for a job with another organization within the next 12 months?"

(2) Dependent variable (1,5) where 1='already looking' and 5='not at all likely'. Ordered probits.

(3) See table 2 for other notes

4

Table 4: Work harder than co-workers

(1) M1

(2) M2

(3) M3

(4) M4

(5) M5

(6) M6

(7) M7

(8) M8

(9) MFE1 (10) MFE2 (11) MFE3 (12) MFE4

Member 0.226 ** 0.168 *

0.160

3.13

2.01

1.88

Time as Member (ref: non-member)

< 1 year

0.120

0.279 *

0.221

1.06

2.40

1.86

1, < 2 years

0.332 ** 0.247

0.231

2.63

1.88

1.73

2, < 5 years

0.279 ** 0.097

0.103

3.09

0.92

0.96

5+ years

0.152

0.049

0.101

1.54

0.38

0.76

Missing

-0.338

-0.625

-0.664

-0.81

-1.27

-1.13

N shares held (ref.: none)

<100

0.162

0.189

0.153

1.42

1.65

1.31

100-499

0.214 * 0.151

0.126

2.19

1.47

1.19

500-1999

0.181

0.068

0.078

1.68

0.55

0.61

2000+

0.346 ** 0.147

0.176

3.45

1.14

1.36

N shares missing

-0.041

-0.022

0.070

-0.15

-0.08

0.27

Current monthly contribution (ref.: none)

US$1, <70

0.142

0.113

0.117

1.65

1.23

1.25

US$ 70, <200

0.205 * 0.149

0.163

2.03

1.34

1.44

US$ 200+

0.465 ** 0.327 **

0.320 **

4.83

2.98

2.85

Constant 1.088 ** 1.449 ** 1.088 ** 1.401 ** 1.087 ** 1.434 ** 1.081 ** 1.441 ** 1.460 ** 1.426 ** 1.447 ** 1.430 **

18.80

5.65

18.78

5.43

18.43

5.58

19.22

5.63

4.40

4.27

4.36

4.31

R2 0.003

0.066

0.003

0.066

0.003

0.065

0.007

0.067

0.070

0.069

0.068

0.070

5

N 2642 2642 2642 2642 2642 2642 2642 2642 2642 2642

2642

2642

Notes:

(1) Dependent variable is how hard employees rate their own work minus the rating they give to co-workers.

(2) Scores run from -10 to +10 estimated with OLS.

(3) See table 2 for other notes

6

Table 5: Absence

(1)

M1

(2)

M2

(3) M3

(4)

M4

(5)

M5

(6) M6

(7)

M7

(8)

M8

(9) MFE1 (10) MFE2 (11) MFE3 (12) MFE4

member

-

0.276

-

0.768

-0.374

-0.86

-1.89

-1.30

Time as member (ref: non-

member)

<1 year

0.775

-

0.444

-0.227

1.73

-0.87

-0.65

1, <2

years

-

0.291

-

1.279 *

-0.917 *

-0.61

-2.32

-2.53

2, <5

years

-

0.581

-

0.696

-0.200

-1.41

-1.42

-0.59

5+ years

-

0.649

-

0.945

-0.433

-1.17

-1.29

-0.89

Missing

-

0.779

0.136

3.445

-0.11

0.02

0.95

N shares (ref: none)

<100

0.133

-0.427

-

0.274

0.29

-0.88

-0.87

100-499

0.262

-0.496

-

0.198

0.55

-0.93

-0.50

500-1999

-

0.073

-0.964

-

0.460

-0.15

-1.67

-1.21

2000+

-

1.607 **

-

1.775 **

-

0.946 *

-3.23

-2.68

-2.10

Missing

-

0.050

-0.616

-

0.567

-0.06

-0.71

-1.15

7

Contributions (ref: none)

US$1, <70

0.240

-

0.535

-

0.277

0.57

-1.16

-0.81

US$ 70, <200

-

0.478

-

1.261 **

-

0.761 *

-1.18

-2.67

-2.52

US$ 200+

-

1.396 **

-

0.937

-

0.459

-2.88

-1.70

-1.30

_cons 0.407

-

0.772

0.408

-

0.863

0.420

-0.887 0.478

-

0.721

3.353 ** 3.351 ** 3.331 ** 3.352 **

1.61

-0.74

1.61

-0.82

1.63

-0.85

1.93

-0.69

2.89

2.84

2.86

2.88

sigma 7.554 ** 7.289 ** 7.550 ** 7.286 ** 7.538 ** 7.283 ** 7.543 ** 7.283 **

12.75

12.64

12.71

12.64

12.74

12.64

12.79

12.65

r2_p 0.000

0.019

0.001

0.019

0.001

0.019

0.001

0.019

0.033

0.034

0.033

0.034

N 2640

2640

2640

2640

2640

2640

2640

2640

2640

2640

2640

2640

1

Table 6: IV estimates of membership effects on employee behaviour

Quit (1) Quit (2) Job search Work Harder Monitor Absence

OLS IV OLS IV OLS IV OLS IV OLS IV tobit IV

coef -.05 -.04 .74 1.19 -.35 -1.03 .18 .61 -.17 0.18 -2.06 -3.03

t-stat 3.10 0.42 11.21 2.68 4.75 2.13 1.68 0.89 1.20 0.20 2.87 0.50

R2 0.04 0.05 0.21 0.17 0.12 0.06 0.07 0.08 0.17 0.16 0.02 -

N 1087 848 1087 848 1087 848 1087 848 1087 1087 1087 848

Notes:

(1) Coefficient is for share plan membership. IV estimates instrument for membership with

membership rate in employee's office*business unit one year earlier. All models contain

controls as per earlier models, except age entered as linear term and country dummies are not

relevant.

(2) Quit 1 is dummy for likely to quit voluntarily in coming year. Quit 2 is extent to which

agree with statement that plan reduces probability of leaving in coming year (1="not at all";

4="great extent"). Job search is likelihood of looking for a job with another organization in

next 12 months (1="not at all likely" 5="very likely"). Work harder is gap between own score

on hard work scale and perception of co-workers' hard work (-10, 10 where more positive

score is belief working harder). Monitor is (0,9) scale on co-worker monitoring. Absence is

days absent in last 6 months.

(3) All IV are IVREG2 except absence which is ivtobit where prob>chi=0.0004 for the

model.

2

Figure 1: Mean Office/business Unit Expected Quit Rates, by Plan Participation

0

.1.2

.3.4

0 .2 .4 .6 .8 1(mean) member

(mean) dquit 95% CI

Fitted values

0.1

.2.3

.4

0 20 40 60 80(mean) curmembmonths

(mean) dquit 95% CI

Fitted values

-.1

0.1

.2.3

0 100000 200000 300000 400000(mean) nshares

(mean) dquit 95% CI

Fitted values

0.1

.2.3

.4

0 100 200 300(mean) curcontmidp

(mean) dquit 95% CI

Fitted values

3

Figure 2: Mean Office/business Unit Working Harder Than Colleagues, by Plan Participation

01

23

4

0 .2 .4 .6 .8 1(mean) member

(mean) harder 95% CI

Fitted values

01

23

4

0 20 40 60 80(mean) curmembmonths

(mean) harder 95% CI

Fitted values

-10

12

34

0 50000 100000 150000 200000 250000(mean) nshares

(mean) harder 95% CI

Fitted values

01

23

4

0 100 200 300 400(mean) curcontmidp

(mean) harder 95% CI

Fitted values