JOSEPH BLASI, Rutgers School of Management and Labor Relations - New Brunswick
Email: jrbru@hotmail.com
RICHARD B. FREEMAN, National Bureau of Economic Research (NBER), University of Edinburgh - School of Social and Political Studies, Harvard University, London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)
Email: freeman@nber.org
CHRIS MACKIN, Ownership Associates, Inc.
Email: cm@ownershipassociates.com
DOUGLAS L. KRUSE, Rutgers University
Email: dkruse@rci.rutgers.edu

This paper uses data from NBER surveys of over 40,000 employees in hundreds of facilities in 14 firms and from employees on the 2002 and 2006 General Social Surveys to explore how shared compensation affects turnover, absenteeism, loyalty, worker effort, and other outcomes affecting workplace performance. The empirical analysis shows that shared capitalism has beneficial effects on all outcomes save for absenteeism and that it has its strongest effects on turnover, loyalty, and worker effort when it is combined with: a) high-performance work policies (employee involvement, training, and job security), b) low levels of supervision, and c) fixed wages that are at or above market level. Most workers report that cash incentives, stock options, ESOP stock, and ESPP participation motivate them to work harder. The interaction of the effects of shared capitalism with other corporate policies suggests that the various shared capitalist and other policies may operate through a latent variable, corporate culture.

DOUGLAS L. KRUSE, Rutgers University
Email: dkruse@rci.rutgers.edu
RICHARD B. FREEMAN, National Bureau of Economic Research (NBER), University of Edinburgh - School of Social and Political Studies, Harvard University, London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)
Email: freeman@nber.org
JOSEPH BLASI, Rutgers School of Management and Labor Relations - New Brunswick
Email: jrbru@hotmail.com

This paper examines how shared capitalism compensation systems - those that link employee pay to company performance - affect diverse employee outcomes. It uses two data sets: the national GSS survey that provides a broad representative view of the extent of the programs; and the NBER Shared Capitalism Project surveys of workers in 14 companies that use shared capitalism programs extensively. We find that greater involvement in the programs is generally linked to greater participation in decisions, higher quality supervision and treatment of employees, more training, higher pay and benefits, greater job security, and higher job satisfaction. We also find positive interactions of shared capitalism with high-performance policies in predicting participation in decisions and overall job satisfaction, and negative interactions of shared capitalism with close supervision in affecting almost all of the outcomes. Overall the results support the idea that workers can gain by sharing, but whether this happens is contingent on other workplace policies.

MICHAEL S. KNOLL, University of Pennsylvania Law School, University of Pennsylvania - Real Estate Department
Email: MKNOLL@LAW.UPENN.EDU

Samuel Zell's acquisition of the Chicago Tribune Company (the Tribune) in December 2007 using a little-known type of Employee Stock Ownership Plan (ESOP) made headlines. In a complicated transaction, which took nearly a year to complete, the Tribune converted from a subchapter C corporation to a subchapter S corporation, established an ESOP that purchased 100 percent of the company's equity, and sold Zell a call option giving him the right to purchase 40 percent of the company's equity. Press reports claim that Zell's novel structure enabled Zell to outbid other suitors. And financial commentators predict that many acquirers will employ that same structure as soon as acquisition activity picks up. Zell's Tribune transaction also caught the eye of legislators, including Congressman Charles Rangel, who introduced a bill that would increase the tax on indirect claims - such as the one owned by Zell - on the equity of an S corporation held by an ESOP (synthetic equity).

Although ESOPs are more than 30 years old, until 1998, an S corporation could not sponsor an ESOP. Over the last ten years, so-called S ESOPs have grown rapidly, but largely outside of public view. The Tribune transaction has focused a bright light on S ESOPs and there are some who believe that their current tax treatment is too favorable. Yet, there has been little in-depth analysis of the tax treatment of S ESOPs. Accordingly, this paper attempts to fill that gap by presenting a systematic economic evaluation of the tax consequences of using an S ESOP. It seeks to describe both qualitatively and quantitatively the tax advantages and disadvantages of using an S ESOP (with or without synthetic equity) relative to alternative available structures. This paper also estimates by how much the S ESOP structure likely allowed Zell to increase his bid for the Tribune.

JOHN W. BUDD, University of Minnesota - Twin Cities - Carlson School of Management
Email: jbudd@umn.edu

The potential of shared capitalism to improve individual and organizational performance through financial incentives depends on employees knowing about and participating in compensation plans that link rewards to performance. This paper therefore analyzes a survey of employees from multiple companies to assess the extent to which employees are ignorant about company, group, and individual-based incentive pay plans and ESOPs. The findings reveal significant amounts of employee ignorance in both under- and overstating the extent to which such plans apply to them individually.

ANDREW LUND, Pace University School of Law
Email: alund@law.pace.edu

Executive pay packages are increasingly subject to the criticism that they do not maximize shareholder wealth. Critics have sought a more active role for shareholders in determining compensation levels of executives at public companies. One manifestation of this movement is the recent promulgation of stock exchange rules requiring shareholder approval of equity compensation plans. This Article examines these rules and the most prominent academic criticism of executive compensation. It concludes that the rules do not provide satisfactory resolution for any side of the debate over executive compensation and should be revised accordingly.

JOSEPH BLASI, Rutgers School of Management and Labor Relations - New Brunswick
Email: jrbru@hotmail.com
DOUGLAS L. KRUSE, Rutgers University
Email: dkruse@rci.rutgers.edu
HARRY MARKOWITZ, University of California at San Diego
Email: HarryHMM@aol.com

Some analysts view risk as the Achilles Heel of employee ownership and to some extent variable pay plans such as profit sharing and gainsharing. Workers in such shared capitalist firms may invest too much of their wealth in the firm, contrary to the principle of diversification. This paper addresses whether the risk in shared capitalism makes it unwise for most workers or whether the risk can be managed to limit much of the loss of utility from holding the extra risk. We create an index of financial security based on worker pay and wealth, and find that workers who feel financially insecure exhibit fewer of the positive outcomes associated with shared capitalism, and are less interested than other workers in receiving more employee ownership or even more profit sharing in their workplaces. This response is substantially lessened, however, when accounting for worker empowerment, good employee relations, and high-performance work bundles that appear to buffer worker response toward risk and increase interest in shared capitalism plans. We also discuss portfolio theory which suggests that any risky investment - including stock in one's company - can be part of an efficient portfolio as long as the overall portfolio is properly diversified. We show that given estimates of risk aversion parameters, workers could prudently hold reasonable proportions of their assets in employee stock ownership of their firm with only a modest loss in utility due to risk. A good strategy for firms is to personalize individual portfolios on the basis of worker characteristics and preferences, developing investment strategies that would diversify each worker's entire portfolio in ways consistent with individual risk preferences.