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Buying company stock increases workers’ sense of responsibility to boost profits – but also fosters feelings of entitlement, study finds

August 7, 2015

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AUGUST 7 - "One of the most sweeping trends in the workplace today," is how a new study describes the unprecedented extent of ownership U.S. workers have in their firms, some 28 million having acquired shares through various compensation and benefit plans. And what limited  research there has been on worker purchases of company stock concludes that employers have benefited nicely from this trend both through the financial investment it attracts and improved employee job attitudes.

But now research that probes the issue in a new way finds that growth in these purchases can be more of a headache for employers than previously thought. In the words of a study being presented at the annual meeting of the Academy of Management (Vancouver, British Columbia, August 7-11), "investment in company stock can...enhance employee entitlement perceptions and behavior [which] may ultimately result in higher expectations that organizations may find difficult to fulfill." 

These expectations, the study continues, include "beliefs that the employer is obligated to provide an array of costly benefits and practices, including promotions, training and career development, job security, and high salaries. If the employer does not offer...such benefits in conjunction with buying-ownership plans, employees investing a higher percentage in company stock may perceive a violation of the psychological contract, which may reduce employee trust, job satisfaction, organizational citizenship behavior, and intent to stay." 

The research finds too that "perceptions of doing more in terms of ownership behavior were also associated with an increased proportion of personal leave taken...Although taking some available personal leave may be beneficial to the firm (by allowing employees to avoid burnout and attend to non-work needs), taking too much of one's accrued leave or taking it at the wrong time, could impede productivity and ultimately diminish organizational effectiveness. Moreover, whether absence ultimately ends up being good or bad for the organization, it is still clearly an unintended consequence of employee investment in company stock." 

"In short, the outcomes of employee voluntary investment in company stock appear to be more complex than organizations may have realized, "concludes the study, a collaborative effort of Benjamin B. Dunford of Purdue University, Deidra J. Schleicher of Texas A&M University, Liang Zhu of the University of Pittsburgh, and Sung Choon Kang of Seoul National University. 

The study addresses voluntary employee purchases of company shares, as distinct from granting of shares by firms. Voluntary purchase has ballooned in recent years with the phenomenal growth of 401(k) plans as the dominant savings program offered by US employers. These tax-sheltered retirement plans enable employees to voluntarily withhold a certain percentage of their take-home pay to invest in a number of different types of securities, including company stock, outside mutual funds, or savings bonds. 

In parallel to the advice that experts in personal finance often give to workers, the authors counsel firms to discourage heavy employee investment in company stock. Firms can do this, the professors assert, "by training employees to understand the advantages of diversification and/or by designing 401(k) plans such that employees have a number of alternative investment choices. This might not only help avoid some of the unintended (and potentially problematic) outcomes identified here but it also makes good investment sense, given the increased risk shouldered by employees participating in defined-contribution plans." In this regard, the study cites the huge losses sustained by employee-investors in the recent recession and as a result of earlier accounting scandals at Enron and other firms. 

Noting, too, that companies typically match employee 401(k) contributions, the professors urge firms to "foster a sense of balance in the employment relationship by offering these matching contributions in forms other than company stock...Allowing employees to decide where to direct matching contributions may enhance the perceived value of the contributions and also avoid encouraging employees to be too heavily concentrated in company stock, which, as our results show, may ultimately be associated with the development of entitlement outcomes.” 

The paper's findings are based on an analysis of survey and personnel data concerning 409 employees of a commercial real estate firm, with controls for factors that could affect results, including gender, compensation, and tenure. Participants, about 40% female, averaged about $78,000 in annual compensation. About 18% were managers, and almost two thirds had four-year college degrees or higher. Investment in company stock as a percentage of total 401(k) contributions ranged from zero to 100%, with a mean of 44%. 

Participants' attitudes toward the company were assessed in three principal ways, as follows:  

■  Four survey items measured to what extent stock ownership affected their job performance, as gauged by their response on a scale of 1 (strongly disagree) to 5 (strongly agree) to such statements as "I work at improving my performance on the job in order the make the company more profitable" and "I make suggestions about new, innovative ways of doing my job in order to make the company more profitable."

■  Seven survey items consisted of statements probing the extent of the company's obligation to them, on a scale of 1 (not at all) to 5 (very strongly) with respect to the following: 1) promotions, 2) high pay, 3) pay based on current level of performance, 4) training, 5) long-term job security, 6) career development, and 7) support in dealing                

■  Personal leave taken was assessed as a proportion of days taken to days available for each employee.

The professors found that the more employees invested in company stock, the more responsible they felt to contribute to company performance – but, at the same time, the greater was their sense of entitlement and propensity to take personal leave days. In sum, a welcome increase, through stock ownership, of good company citizenship contributes to attitudes and choices with dubious or downright negative consequences for the firm.

The paper, entitled “Unintended Consequences of Voluntary Company Stock Investment," was among the thousands of research reports presented at the 2,150 sessions of the Academy of Management annual meeting, in Vancouver, British Columbia, from August 7th through 11th. Founded in 1936, the Academy of Management is the largest organization in the world devoted to management research and teaching. It has about 20,000 members in 114 countries. This year's annual meeting has drawn some 11,000 scholars and practitioners for sessions on a host of subjects relating to business strategy, organizational behavior, corporate governance, careers, human resources, technology development, and other management-related topics. 


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