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The Impact of Economic Democracy: Profit-sharing and Employee Shareholding Schemes.

This volume represents the second in a two part study that examines the origins and consequences of profitsharing and employee-shareholding in British firms. The first volume, The Origins of Economic Democracy (published in 1989), examined the underlying causes for the development of different profit-sharing and employee-shareholding schemes. This second volume examines their impact on a wide variety of economic, industrial relations, and organizational factors. One should read the previous volume before reading this volume.

Both volumes report the findings of a Department of Employment-sponsored study of 303 British firms which have profit-sharing and employee shareholding plans. A smaller sample of 22 firms were then targeted for further study. The researchers conducted interviews with key management and trade union personnel, collected extensive company performance data over a ten year period, and completed a questionnaire on employee attitudes for each of the 22 firms. This volume reports the findings from this in-depth scrutiny of these 22 firms. Firms in the smaller sample were selected in order to get a balance of geographic location as well as the types of plans and their longevity.

Chapter One provides a lucid literature review on the potential impact of employee shareholding schemes. The authors organize the review in three areas: economic, industrial relations, and organizational issues. In the economic realm they include both such macroeconomic issues as wage flexibility, employment, and inflationary impacts and such microeconomic issues as profitability and productivity. In the area of industrial relations they include the impact on employee commitment to unions, the level of industrial conflict, the level of managerial authority, and the role of collective bargaining in the firm. In assessing the impact on the organization, they consider the degree of employee involvement, of employee identification with the firm, and of employee satisfaction and commitment to the firm, and of attitudes toward work. With the exception of the macroeconomic issues which cannot be evaluated due to the nature of the study, the authors have designed the study to examine the issues listed above.

In Chapter Two the authors present their model and their findings on the impact of employee sharing schemes on the firms' economic performance. Briefly put, their model suggests that a firm selects a particular scheme due to factors peculiar to the firm as well as to its external environment. These differences aside, they argue that the adoption of an employee sharing scheme will increase employee identification with the organization and therefore lead to improvements in the firm's economic and organizational performance and its industrial relations. Regarding the impact on economic performance, their evidence is very inconclusive. Employee questionnaires suggest that employees view the plans as having no impact on productivity and profitability. The sampled firms have generally experienced strong economic performance suggesting a relationship between the existence of employee shareholding and improved economic performance, however they note that the relationship is not necessarily a strong one nor is the line of causality clear.

In Chapter Three the authors assess the impact of the schemes on the firms' industrial relations. Regarding employee absenteeism and turnover, the interviews from key respondents suggested that the plans have had no behavioral impact, and the company data corroborated this. They found that shareownership status led to some mild differences in employee attitudes regarding the role of unions. For example, employees (and trade unionists) who are shareholders do tend to advocate more strongly a non-conflictual role for unionmanagement relations. While the authors note that this difference can be explained by the predisposition of those employees who choose to become shareholders, they conclude, without sufficient corroboration, the evidence supports that shareholding has some modest impact on attitudes.

In Chapter Four the authors evaluate the impact of employee sharing schemes on employee attitudes toward organizational commitment. From analyzing the employee questionnaires, they find that employees generally want more say in matters than they have, particularly in matters regarding their job and department. Employees who are shareholders are more likely to desire to participate in firm level decisions than their nonshareholding colleagues. Further, their findings suggest that employee sharing schemes mildly increase job satisfaction and involvement in one's job.

In Chapter Five they focus on three case studies to show the interrelationships between the initial managerial objectives for the sharing scheme, the financial profile of the firm, and the employee attitudes toward the share scheme. While the analysis shows the importance of firm-specific conditions in understanding the impact of the share schemes on employee attitudes, they do not attempt to identify generalizable patterns among these variables.

Clearly, the authors have gathered a large amount of information regarding the British experience with profit-sharing and employee-shareholding schemes. Yet, the study suffers from the same limits of its research design that has flawed previous empirical work in the area. in studying only those firms with sharing schemes, findings of positive correlation between the sharing schemes and variables, such as profitability, still leave the question of causality unanswered. Is it that firms who initiate sharing schemes are likely to become more profitable or is it that profitable firms are more likely to initiate such plans? Nonetheless, their work is significant and should be read by those who are interested in identifying the complex consequences of employee-sharing schemes.
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Author:Williams, Robert B.
Publication:Southern Economic Journal
Article Type:Book Review
Date:Jul 1, 1992
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