What difference does it make?
At JGA, we’re always interested in evidence-based research on the impact of employee ownership and how this might inform what we do. For our latest guest blog, we invited Dr Jonathan Preminger and Dr. Dimitrinka Stoyanova Russell – both Senior Lecturers in Management, Employment and Organisation at Cardiff Business School – to share what emerged after they spent 12 months’ researching a key question for every EO business: what difference does being EO actually make?
Dr. Jonathan Preminger and Dr. Dimitrinka Stoyanova Russell
Does employee ownership (EO) make a difference? Champions of this increasingly popular organisational form assert that the change of ownership structure, accompanied by forums for employee voice and participation, leads to better decision-making, greater commitment, and improved employment terms and conditions, which enhance productivity and, ultimately, increase the organisation’s success. It seems one cannot go wrong, so what more is there to discuss?
Well, academic research is more circumspect. Scholars investigating EO over the years, looking at various ownership models and governance structures, have failed to agree on an unequivocal answer to the question: what difference does it make? The range of models and structures has contributed to the difficulty of researching EO meaningfully. The Finance Act 2014 and the resultant rapid growth of the Employee Ownership Trust (EOT) model have created an opportunity for a more systematic investigation and robust comparison across sectors, with greater conceptual clarity. By focusing on a single model, we can cancel out the variation due to different structures, and look at the impact this specific kind of EO is likely to have on businesses and the experiences of those working with and within them. And this is what we set out to do.
For the last year, we have been speaking to key people in EO firms throughout the UK in order to understand the transition process and the benefits it brings to employees. To unpack the latter, we chose to use the concepts of ‘decent work’ and ‘job quality’. Why? Firstly, ‘decent work’ has recently been in the spotlight and on the agenda of major international organisations like the UN and the ILO, as well as a key policy concern for the UK government. Secondly, and we hope you would agree, if EO is to be more than merely an elaborate profit-share scheme, it should improve the experience of work – and the concept of ‘job quality’ can capture this. Thirdly, HRM suggests that having happy, fulfilled and engaged employees is likely to increase the success of the organisation, so we wish to explore the potential of EO to do exactly that.
Discussing ‘job quality’ however is not straightforward. Though there is little agreement on its precise indicators, it is generally agreed that it is “constituted by a set of work features that have the capability of enhancing or diminishing worker well-being”. Focusing on such work features, we investigate the organisation of work, skills and development, wages and compensation, job security and flexibility, and engagement and representation. As you too would be aware, employees’ perspectives are subjective: their understanding of job quality is likely to be related to personal backgrounds and expectations, and it must be remembered that even when employees are satisfied with workplace conditions, these may be detrimental to workers’ physical (or mental) health. Likewise, pay and remuneration are important, but pay is a poor proxy for job quality on its own: conditions can deteriorate even as wages rise. With these words of caution in mind, let us now turn to what we found so far.
Over the five key components, and despite some variation, our findings suggest that EO is likely to lead to a modest rise in job quality. This is encouraging, but let us examine this further. Wages were often a prominent concern, but beyond profit-shares and dividends, we also discovered firms which aspired to pay above market rates for the lower-paid employees; a few cases even aimed to reduce pay differentials between senior management and shop-floor staff. Aspirations for greater remuneration equality were reflected in employees’ perceptions of a greater sense of mutual respect despite organisational hierarchies, and an equal voice in developing organisational culture and values. Similarly, many firms spoke of their efforts to avoid an ‘us and them’ culture between core employees and administrative/maintenance staff, as well as trying to reduce their use of subcontractors, labour agencies and self-employed staff.
Employees noted a greater sense of control over the firm’s vision. All the firms we spoke to had set up or formalised some kind of employee council; in some cases, employee representatives sit on both the board of directors and the board of trustees, too. Almost all firms noted that there was more transparency of the organisation’s key data, and many had formalised the processes by which this data was distributed to employee-owners. Educating employees about reading those and various other business issues was also not uncommon. Many people we spoke to talked about their organisation as simply a ‘nice place to work in’, of ‘being in it together’. This was sometimes supported by concrete steps, e.g. more opportunities for job rotation or at least having a taste of colleagues’ jobs. Linked to this idea, we found many employee-owners were more willing to share the burden during tough times to avoid laying off staff.
However, the increased job quality was sometimes rather marginal. Indeed, a key finding from our research is that for many of the organisations the transition to EO was a way of preserving what good the firm was already doing and ensuring it continued to operate in the same way, without fear of buy-outs that could change the organisation’s character. This finding is unlikely to surprise anyone recently involved in a transition to EO. Importantly, such preservation does require some adaptation: most prominently, formalising what had already been done before the transition. We discovered that in many cases various HRM processes such as training, career progression, voice and participation, were formalised often just to seal pre-existing practices rather than make improvements. Crucially, in many cases this formalisation extended to the understanding that the business should be retained within a specific location and community: an important aspect of recent conceptualisations of job quality that take a more holistic view of an organisation’s role within its locale. Is this a significant positive impact of the transition? The degree and evaluation of this may vary across firms and across perceptions, but in any case, this is an important question to consider.
From our preliminary findings, we can say that EO in itself is unlikely to guarantee an immediate improvement to job quality: its impact seems to be conditioned or at least mediated by pre-existing aspirations and informal practices, or by the organisational culture. The transition to EO, then, is both an opportunity and a stimulus for preserving and formalising elements of job quality already enjoyed by employees, and a way of anchoring a status quo in firms already considered to be “nice places to work in.’’ This is reassuring. But is it sufficient?
For vocal advocates of EO, this may appear to be a somewhat lacklustre claim. But let us not forget that the EOT model is still in its early stages. We also found some evidence to suggest that the length of time a firm has been EO matters. The participatory aspects of EO in particular seem to get stronger with time, and respond better to changing external context. In addition, the sector in which the firm operates is significant, not only in terms of overall job quality (employees in some sectors enjoy ‘better jobs’ than others regardless of EO), but also in terms of what aspects of job quality are appreciated by employees. In some sectors, EO is likely to be more impactful in helping to retain local jobs and ensuring relatively good wages, while in other sectors it might ‘merely’ formalise pre-existing structures of voice and profit-share. Finally, it is worth noting that EO may benefit different employees to different extents within the same organisation: for example, core professional staff such as dentists or architects may not feel greatly the changes resulting from a transition to EO; yet support staff, cleaners or contract labour may find their job quality and working lives significantly and positively impacted by the transition. This, we think, is already an achievement worth celebrating.
About the authors
Dr. Jonathan Preminger is Senior Lecturer in Management, Employment and Organisation at Cardiff Business School and author of Labor in Israel: Beyond Nationalism and Neoliberalism (ILR Press, 2018). His research interests include employment relations, the sociology of work, and alternative organizations. Jonathan is a member of the Editorial Board of Work, Employment and Society, co-convener for the Work, Employment and Economic Life study group in the British Sociological Association, and director of the Employment Research Unit at Cardiff Business School. Email: premingerj@cardiff.ac.uk
Dr. Dimitrinka Stoyanova Russell is Senior Lecturer in Management, Employment and Organisation at Cardiff Business School. She has published on skills and performance, social networks, diversity, careers and skills in the UK Film and TV, employment and emotional labour of stand-up comedians. Dimitrinka is a member of the British Sociological Association, a member of the Editorial Board of Work, Employment and Society, and a Research Associate of the Institute for Capitalising on Creativity at St Andrews University. Email: stoyanovarusselld@cardiff.ac.uk
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