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  • Employee Ownership, Participationand Governance

    This volume is an examination of the origins, characteristics and per-formance of employee-owned firms. Representing the first in-depth studyof Employee Share Ownership Plans (ESOP), it focuses on firms whichhave converted to either partial or full employee ownership using recentinstitutional, fiscal and legal innovations. Key questions addressedinclude:

    under what circumstances do firms convert to employee ownership? what are the main organisational and institutional features of firms

    with ESOPs? are ESOPs an effective method of stakeholder capitalism?

    Based upon five years of empirical research, this is an important andtopical contribution to recent debates on the changing nature of employ-ment.

    Andrew Pendleton is Professor of HRM at Manchester MetropolitanUniversity.

  • Routledge Research in Employment Relations

    1 Social Partnership at WorkCarola M. Frege

    2 Human Resource Management in the Hotel IndustryKim Hoque

    3 Redefining Public Sector UnionismUNISON and the Future of Trade UnionsEdited by Mike Terry

    4 Employee Ownership, Participation and GovernanceA Study of ESOPs in the UKAndrew Pendleton

    Also available from Routledge:

    Rethinking Industrial Relations: Mobilisation, Collectivism and Long WavesJohn Kelly

    Employee Relations in the Public Services: Themes and IssuesEdited by Susan Corby and Geoff White

    The Insecure WorkforceEdited by Edmund Heery and John Salmon

    Public Service Employment Relations in Europe: Transformation,Modernization or Inertia?Edited by Stephen Bach, Lorenzo Bordogna, Giuseppe Della Rocca and David Winchester

  • Employee Ownership,Participation andGovernanceA study of ESOPs in the UK

    Andrew Pendleton

    London and New York

  • First published 2001by Routledge11 New Fetter Lane, London EC4P 4EE

    Simultaneously published in the USA and Canadaby Routledge29 West 35th Street, New York, NY 10001

    Routledge is an imprint of the Taylor & Francis Group

    2001 Andrew Pendleton

    All rights reserved. No part of this book may be reprinted orreproduced or utilised in any form or by any electronic,mechanical, or other means, now known or hereafter invented,including photocopying and recording, or in any informationstorage or retrieval system, without permission in writing from thepublishers.

    British Library Cataloguing in Publication DataA catalogue record for this book is available from the British Library

    Library of Congress Cataloguing-in-Publication DataPendleton, Andrew, 1957

    Employee ownership, participation, and governance: a study of ESOPs in the UK / Andrew Pendleton.

    p. cm. Includes index.1. Employee ownershipGreat Britain.2. ManagementEmployee participationGreat Britain.3. Stock ownershipGreat Britain. I. Title.

    HD5660.G7 P419 2000331.2'164dc21 0004263

    ISBN 0415204240

    This edition published in the Taylor & Francis e-Library, 2001.

    (Print Edition)ISBN 0-203-18597-8 Master e-book ISBNISBN 0-203-18720-2 (Glassbook Format)

  • To Amy, Eileen, and Leah

  • Contents

    List of tables and figures ixAcknowledgements xiAbbreviations xiii

    1 Introduction 1

    2 The development of employee ownership 19

    3 Employee ownership and politics 41

    4 The structures of employee ownership 60

    5 Contexts and reasons for employee ownership 80

    6 Employee participation and governance: theory and predictions 106

    7 Employee participation and governance: institutions, practices, and outcomes 129

    8 Ownership, participation, and employee attitudes 154

    9 Conclusions and discussion 181

    Appendix 1 196

    Appendix 2 198

    Notes 200Bibliography 209Index 225

  • Chapter Title ix

    Tables and figures


    5.1 The circumstances of employee ownership 845.2 Levels of employee ownership 855.3 Levels of insider ownership 855.4 The reasons for employee ownership 865.5 Involvement of unions in ownership conversions 875.6 Employee ownership in the bus industry 885.7 Performance of bus companies becoming employee-owned

    in 1991 905.8 Performance of bus companies becoming employee-owned

    in 1993 915.9 Wage costs of bus companies becoming employee-owned

    in 1991 925.10 Wage costs of bus companies becoming employee-owned

    in 1993 927.1 Involvement of employee directors in decisions 1337.2 Involvement of trustees in decisions 1377.3 Information provision by management to union

    representatives and the workforce 1407.4 Influence of trustees, union representatives, employee

    directors, and top managers in decisions 1418.1 Proportions of employees who had received shares 1618.2 Distribution of shares by company 1628.3 Employee perceptions of the effects of employee ownership

    on the firm 1638.4 Relationships between levels of share ownership and

    perceptions of the effects of employee ownership on the firm 164

    8.5 Occupational differences in perceptions of the effects of employee ownership on the firm 164

    8.6 Employee perceptions of the effects of employee ownership on personal attitudes and behaviour 165

  • x Tables and figure

    8.7 Relationships between levels of share ownership and perceived changes in personal attitudes and behaviour 166

    8.8 Attitudes to ownership 1678.9 Relationships between feelings of ownership and

    perceptions of individual and organisational change 1688.10 Determinants of feelings of ownership 1708.11 The effects of ownership and participation on feelings

    of integration and involvement 1728.12 The effects of ownership and participation on propensity

    to quit and commitment 1738.13 Occupational differences in perceptions of the impact

    of employee ownership on employee say in decisions 1748.14 Levels of desired and actual participation 1768.15 Correlates of actual and desired participation 1788.16 Evaluations of increases in worker say as a result of

    employee ownership: comparison of those with a low and high desire for participation 179

    A1.1 The relationship between feelings of ownership, co-operation, and peer pressure 197


    4.1 The use of a case law ESOP in buy-outs 62

  • Chapter Title xi


    This book has been a long time in the making. I first developed an interestin employee ownership at the beginning of the 1990s. Nick Wilson, then acolleague at Bradford University, was mainly responsible for introducingme to this field. We spent an enjoyable few months travelling the lengthand breadth of Britain collecting information on the early ESOPs. He wasmainly responsible for assembling the questionnaire used to collect data onemployee attitudes (see Chapter 8). Nicks research interests later shiftedfrom profit sharing and share ownership to credit management, but I con-tinued to find ESOPs and employee share ownership fascinating. My maininterest has been in the interface of employee share ownership, industrialdemocracy, and corporate governance. Hence the title and subject matterof this book.

    It is inevitable that many colleagues have contributed to this research.Keith Walley, and later John McDonald, provided able research assistance.Also at Bradford, Maria Gonzalez-Menendez and Andrew Robinsonprovided invaluable help with the research, and contributed to a broaderprogramme of work on employee financial participation. The role offinancial support cannot be underestimated. Nick Wilsons initial investig-ations were assisted by the Centre for Economic Performance at theLondon School of Economics, whilst later the research was supported bythe Nuffield Foundation, the Economic and Social Research Council (grantR000234936), and the Bradford University Research Fund.

    A very large number of people in organisations with ESOPs and employeeshare ownership have contributed to the project. It is invidious, of course,to name individuals but mention should be made of Dave Wheatcroft andNorman Watson of the Centre for Employee Ownership and Participation.It was at a CEOP conference in the Mainline social club in Rotherham thatI first really appreciated the importance of the ideas that are the centralthemes of this book, namely that the interests, philosophies, and objectivesof the key actors in ESOPs determine the structures and character ofemployee participation and governance. More recently, I must acknow-ledge the stimulating debates on employee share ownership held with

  • xii Acknowledgements

    colleagues on the Inland Revenue Advisory Group on Employee ShareOwnership, and in the Inland Revenue itself.

    Many others have contributed to the development of ideas presented inthis book. Many a discussion has been held with Neil Carter on workers co-operatives and employee ownership. Howard Gospel has providedinvaluable advice and help. As the book was being written, we started towork together on the labour effects of corporate governance systems, andthis helped to broaden the disciplinary boundaries of the book to includesome engagement with the Financial Economics literature on governance. Ihave also enjoyed working with Mike Wright on employee share ownershipin newly industrialising countries and on employee attitudes to share owner-ship. Colleagues at the University of Sydney (where I spent some studyleave in 1997) provided a most welcoming and stimulating atmosphere inwhich to start writing the book. Mention should also be made of stimulat-ing discussions with Lisa Trewhitt and Erik Poutsma.

    I must also thank colleagues in the Department of Management and theHuman Resource Management Research Group at Manchester Metro-politan University for their forbearance and support during the final stagesof writing the book. In particular, I am gratefu