Ernest O'Boyle portrait
September 6, 2016
Mark Simons

Companies that reward employees with ownership stakes have an edge over those that don't, according to a new study of nearly 57,000 companies around the world.

Employee ownership, including defined-contribution plans with substantial holdings in the employer's stock, profit-sharing policies and stock-bonus programs, can boost corporate profits by as much as 4%, says Ernest O'Boyle, a professor of management and organizations at the University of Iowa and co-author of Employee Ownership and Firm Performance: A Meta-Analysis, a paper published in the Human Resources Management Journal.

"The consistency of the effect really surprised me," Dr. O'Boyle says. "Although the effect is small, it's pretty darn robust."

"Our results suggest that a firm with $1 million in profits could realize an increase of $40,000," the authors conclude.

The study is the first of its kind in more than two decades, and one of the few analyses to illustrate that worker ownership can have "a small, but positive and statistically significant relation to firm performance," the authors write.

Dr. O'Boyle and his colleagues didn't set out to determine why the performance edge exists. In the paper, they call for future studies to assess "the large, unexplored black box" of what the authors have dubbed "shared capitalism."

Some 32 million Americans participate in an employee-ownership program, according to the National Center for Employee Ownership. The NCEO's national survey data show 19.5% of U.S. private-sector employees reported owning stock or stock options in their companies in 2014, down slightly from 21.2% in 2002.

Of the many companies that offer workers ownership stakes, few can claim to be majority-owned by employees. With its 182,500 employees, Lakeland, Fla.-based Publix Super Markets is the nation's largest employee-owned company. The next two largest—Eden Prairie, Minnesota-based photography company, Lifetouch and Springfield, Missouri-based staffing firm—have far fewer employees, with 21,000 and 20,420, respectively.

For decades, business leaders and academics have debated the merits of employee-ownership programs. Supporters have argued that workers are more diligent and productive when they own a piece of the business. Detractors, however, have claimed ownership makes employees averse to risk and leads to shirking of responsibilities.

Meanwhile, research into the bottom-line benefits of such plans had been inconclusive—until now.

Dr. O'Boyle warns that employee ownership isn't a panacea for all that ails a company—or even a solution for weak employee morale. "If you're Eastman Kodak in the ‘80s, you're still going down," he says.