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Benefits: Stock Options Aren't Enough

Conventional wisdom says that employees who own shares in their company will work harder and have better morale than those who don't. But conventional wisdom may yet again be wrong. A December, 2003, paper from the National Bureau of Economic Research, co-authored by Rutgers University's Douglas Kruse and six other economists, finds that the presence of an employee stock ownership plan doesn't necessarily motivate participating employees to work harder.

Instead, they found that for ESOPs to be successful, companies must share operational information with workers and give them a voice in decision-making. Employee orientations and regular departmental and work group meetings, together with an ESOP, can help employees feel more vested in the company's future and motivate them to be more productive.

A participatory culture generates another positive effect. Looking at data from other ESOP businesses and their owners, the economists found that workers who are highly involved in decision-making are four times more likely to talk directly to a colleague who is underperforming and twice as likely to report that person to a supervisor. "The bottom line is employee ownership can help a business," says Kruse. But a business needs to have the right culture to get the most out of an ESOP.

By James Mehring

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