Overview
The backbone of the American economy is the small family-owned business. The responsibility
of running such a business on one's own involves a great deal of both stress and
time. Often, the owner has no one to trust to take care of the company while going
on a much needed vacation. Not only is their time for relaxation severely limited,
but they also have to shoulder all of the responsibilities of the firm. The obvious
solution is to share responsibility, but it is hard to pay competent employees
enough to retain them and employees rarely feel the same sense of responsibility
that owners have. Sharing ownership with employees offers the opportunity to involve
the workforce in the business with the same sense of responsibility that an owner
has. Sharing ownership
through an Employee Stock Ownership Plan (see "When Employee Ownership Makes Sense"
in the Family Business Journal [Winter, 1998]) is one of the necessary ingredients
to establish a successful ownership culture. However, employee-ownership by itself
will not increase employee motivation and performance.
This is the conclusion of the U.S. General Accounting Office (GAO) which compared
ESOP companies with traditionally owned firms. The GAO's study found that the
combination of employee ownership and employee participation yields substantial
improvement in firm performance. It is precisely this type of genuine employee
partnership which can lead your employees to take on some of the responsibility.
According to a
U.S. Department of Labor (DOL) study, the high performance workplace provides
workers with "incentives, information, skills, and responsibility to make decisions
essential for innovation, quality improvement, and rapid response to change."
Further, the DOL suggests, high-performance workplaces exist in companies which
integrate their business, human resource, and technology strategies and share
the following common characteristics:
-
Give workers a stake in the performance of the organization through employee ownership
and gainsharing;
-
Create employment security strategies that recognize the value of workers to long-term
economic performance;
-
Push responsibility down to front-line employees, often by organizing work into
self-managing teams;
-
Provide workers with the information necessary to exercise a high level of autonomy
and discretion;
-
Build worker-management relations on trust, mutual interest, and cooperation;
- Focus on satisfying
customers, not simply shareholders; on improving quality, not simply reducing
costs; and on building organizations that adapt easily to market change;
- Encourage workers
to learn new skills through skill-based pay and pay-for-performance compensation
systems;
- Invest
in training and retraining to develop workers as critical business assets, rather
than treating them as costs to be minimized; and
-
Provide workers with safe and supportive work environments.
Though
the high-performance workplace concept is cited as an optimal solution, the Department
of Labor estimates that currently only 4 percent of U.S. businesses qualify as
high-performance workplaces. Interestingly, 25 percent of employee-owned firms
in the U.S. have these high-performance characteristics. Overall, employee-owned
firms are more likely than traditional firms to provide sufficient incentives,
information, skills, and responsibility to their work forces.
Ownership + Participation + Information + Training = Higher Performance
Studies in the States of Ohio and Washington reinforce the federal government's
findings. The Ohio Employee Ownership Center (OEOC) at Kent State University surveyed
167 Ohio ESOP companies and found that employee-ownership coupled with participation,
education and information leads to higher financial performance. Equally important,
a study in the State of Washington showed that companies which reward employee
participation with stock ownership outperform those which only reward participation
with profit sharing.
The transformation of workers into owners requires cultivating a genuine sense
of ownership where the employees take the responsibility of ownership seriously
and their actions contribute to the company's success. This process obviously
does not occur overnight. Developing an ownership culture among your employees
means seeing that they get what you already have: equity, a say in how things
get done, information and training. Employees need to understand company financial
reports and develop their decision making, communication and problem solving skills.
Ownership
Equity makes a big difference. Consider the difference between renting and owning
a home. Unlike a person who rents, the home owner has equity in his or her investment
and therefore will have an incentive to increase the value of that investment.
After all, how many renters do you know that paint the outside of their residence?
Just like a homeowner, an employee-owner has a greater incentive to drive the
value of stock in his or her company. This could result in reducing scrap, generating
creative ideas on how to improve a process, and producing better quality products.
This ownership could be in the form of stock options, a cooperative or an Employee
Stock Ownership Plan (ESOP). Although rewards like profit-sharing and bonuses
are great supplementary incentives, they do not provide employees with an ownership
stake.
When employees
have an ownership interest in their company and are valued for their input, their
jobs become more meaningful. Satisfied employees as well as satisfied customers
stay with the company longer! As mentioned earlier, ownership is just the first
step in creating a successful ownership culture. The remaining ingredients are
participation, training and information.
Participation
Motivated employee-owners need the opportunity to express their ideas for improving
the business to management. Effective communication requires that managers listen,
appreciate dissent and tolerate opposition. Likewise, supervisors need to lead
rather than order, assist rather than discipline, and teach rather than threaten.
It is the responsibility of employees to make suggestions without confrontation,
learn basic business concepts, and work cooperatively with others. Open channels
for input should be maintained throughout the company. To initiate increased levels
of participation, you might consider creating problem solving teams or shop floor
committees.
Whether
your company is employee-owned or not, the goal of participation is maximum feasible
employee involvement in all areas of company decision-making, from the shop floor
to the boardroom. It is through participation on decision making bodies that your
employees can truly accept greater responsibility.
Information
An owner needs access to financial and other strategic information to make sound
business decisions. Responsible employees also need access to company information
like financial reports, scrap rates, customer satisfaction indicators, and on-time
delivery records. Of course information is only useful if it is communicated effectively.
This information can be in the form of regularly published newsletters, annual
or quarterly meetings to review business issues, and company financial statements.
Part of this communication process requires that the receiver to be able to understand
the information presented. This requires a long-term commitment to education and
training.
Training
U.S. firms generally spend much less on training and education for employees than
their competitors in Japan, Germany, Sweden, and other advanced countries. Most
of what U.S. corporations spend goes for management training. The American Society
for Training and Development confirmed that two-thirds of corporate training monies
go into training for those who already have college degrees. If you want to create
a successful ownership culture at your firm, just informing employees is not enough.
They also need to understand the information they receive in order to be informed
and involved owners. Opening your books to employees is meaningless unless your
employees understand how to read financial reports. Meetings to improve quality
lead nowhere if the participants lack effective meeting skills.
Education is a process of learning, and coordinating an effective training program
requires a long term commitment. Training non-managerial employees in problem-solving
and group process techniques helps make employee participation programs work successfully.
Getting Started
It is relatively inexpensive and highly cost effective to undertake some combination
of employee participation, training, open-book management, and financial incentives
to increase company competitiveness. However, family business owners who are seriously
considering the establishment of an ownership culture to increase performance
may want to begin by examining their own personal philosophical beliefs. They
might also want to discuss the challenges and potential rewards with other business
owners who have implemented policies to foster an environment that allows employees
to think and act like owners.
