Employee shareholding in companies is increasingly used as an instrument for employee motivation andretention, both in startups and SMEs. On average, companies with employee ownership are significantly more productive than comparable companies without employee ownership. Despite the many benefits that employee ownership offers, there are also some pitfalls that companies should be aware of to ensure the success of their ownership programs. This article addresses six common mistakes in employee ownership, and integrates academic figures and sources to underscore the importance of employee ownership and its value.
One of the most common mistakes in employee share ownership plans is the lack of clear objectives and poor communication of the plans (Carberry & Brown, 2020). Employees often do not understand what the provisions actually mean and what requirements must be met for them to be entitled to payment from the employee share ownership plan. Companies should therefore clearly define the objectives of the participation programs and communicate these to employees to avoid misunderstandings and disappointment. A study by Kim & Ouimet (2014) shows that companies with effective communication of their employee participation programs achieve 7.5% higher employee satisfaction than companies without such communication.
Another mistake is not taking employees' interests and needs sufficiently into account (Kurtulus & Kruse, 2017). Involvement programs should be flexible and address the individual needs of employees in order to promote their motivation and retention. Pendleton et al. (2019) found that employees in companies with employee engagement programs tailored to their needs had 8% higher retention rates.
Lack of transparency in participation can lead to mistrust and demotivation (Pendleton et al., 2019). Companies should therefore ensure open and transparent communication of participation rules and conditions and ensure that all employees have equal access to information and decision-making processes. According to a study by Buchner et al. (2019), companies can achieve up to 10% higher employee satisfaction through transparency in employee participation.
Employees need sufficient training and support to fully understand the opportunities and risks of participation and to make informed decisions (Rosen et al., 2005). Companies should therefore invest in appropriate training and support to realize the full potential of employee ownership. According to a study by Vidal-Suñé & López-Pérez (2013), comprehensive employee training in connection with participation programs leads to an increase in job satisfaction of up to 12%.
The tax and legal aspects of employee share ownership are complex and can have a significant impact on the attractiveness of share ownership programs (Balsam & Yin, 2015). Companies should therefore ensure that they are fully informed about the tax and legal framework and, if necessary, seek external expertise to avoid costly mistakes and undesirable consequences. A study by Balsam & Yin (2015) found that companies that adequately consider tax and legal aspects can achieve a 9% higher acceptance of their employee share ownership programs.
Employee share ownership programs are intended to promote employee motivation and loyalty and thus contribute to enhancing corporate performance (Freeman & Kruse, 2010). However, participation programs may fail to achieve their incentive effect if, for example, they provide for participation rates that are too low or if the participation rights can only be exercised to a limited extent. Companies should therefore ensure that their shareholding programs have a sufficient incentive effect to achieve the desired effects. According to a study by Freeman & Kruse (2010), an appropriate incentive effect of employee share programs leads to an increase in company performance of up to 6%.
Employee shareholdings can contribute to employee motivation and retention if companies avoid typical mistakes and pitfalls. These include unclear objectives and communication, failure to take employee interests into account, lack of transparency, inadequate training and support, rigid participation programs, neglect of tax and legal aspects, and insufficient incentive effect. Studies show that companies with effective communication, transparent and flexible participation programs that take employee interests into account achieve higher employee satisfaction and retention. Training and legal guidance are also critical. When implemented properly, virtual employee ownership allows for clear objectives, effective communication and transparency, takes individual needs into account. By better aligning with individual needs and providing sufficient incentive, they effectively contribute to enhancing business performance.
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