Employee Stock Options in China: Impacts on Employees' Psychological Ownership and Job Behaviours

By Chan, Andy W.; Tan, Zhanchao | International Journal of Employment Studies, October 2015 | Go to article overview

Employee Stock Options in China: Impacts on Employees' Psychological Ownership and Job Behaviours


Chan, Andy W., Tan, Zhanchao, International Journal of Employment Studies


INTRODUCTION

Employee stock options (ESOs) or Employee Stock Ownership Plans (ESOPs) are management-initiated incentive schemes to provide the opportunity for employees to purchase company shares or receive free shares as part of their remuneration packages. Such schemes have been widely adopted in the United States, including 98 per cent of the largest 250 companies with 8-10 million people participating (Brandes, Dharwadkar & Lemesis, 2003). ESOs have been adopted by organisations in other parts of the world (Cahill, 2002; Perrin, 2001). ESOs are advocated for corporations to retain employees (Bhattacharya & Wright, 2005). This tool is to align agents' interests with those of principals, serving as a remedy for the agency problem (Eisenhardt, 1989). Thus ESOs become an important component of CEOs' compensation packages, with the intent of aligning their interests with those of shareholders (Westphal, 1999), and motivate them to act like owners and work hard to improve firms' performance (Pendleton, Wilson & Wright, 1998).

Most research on ESOs in organisations has been focused on executive stock options (Certo, Daily, Cannella & Dalton, 2003; McGuire & Matta, 2003; Sanders 2001). Only limited studies have been conducted on granting stock options to rank-and-file employees (Core & Guay, 2001; Lowry, 2000). Unlike top managers, frontline employees do not have direct influence on stock price. Some authors have proposed that effective employee ownership initiatives result in employees feeling as if they are owners of the business, an experience being termed 'psychological ownership' (Pierce, Rubenfeld & Morgan, 1991; Pierce, Kostova & Dirks, 2001). Past research suggests employee ownership schemes are positively related to employee attitudes and organisational performance, but the psychological processes explaining the relationship between employee ownership and organisational effectiveness are not well understood (Kruse & Blasi, 1997).

LITERATURE REVIEW

Psychological ownership and ESOs

Pierce et al. (2001) defined psychological ownership as 'that state where an individual feels as though the target of ownership or a piece of that target is "theirs" (ie it is MINE!).' Psychological ownership reflects the state where an object is experienced as a part of the extended self--feelings of possessiveness and psychological linkage to the target of ownership. Organisational members feel ownership through three major routes: controlling the ownership target, coming to intimately know the target and investing the self into the target (Pierce et al., 2001). These routes are distinctive and additive in nature.

Formal employee ownership schemes produce various positive social-psychological and behavioural outcomes, including work motivation, information seeking, stewardship, performance, organisational citizenship behaviour, personal sacrifice and assumption of risk, once employees psychologically experience ownership (Pierce et al., 1991; Pierce et al., 2001). The feeling of ownership may exist in the absence of legal ownership (Rousseau & Shperling, 2003) as other organisational factors also influence the development of psychological ownership. Pierce, O'Driscoll and Coghlan (2004) found employees' job control was essential in influencing psychological ownership.

There are three research gaps in the literature. First, past research mainly focused on ESOs for senior management and less was done on rank-and-file employees. Second, few studies have investigated the effects of ESOs on employee attitudes and behaviours, especially in a quantitative manner. The literature on psychological ownership has been concerned mainly with the consequences rather than the antecedents (Van Dyne & Pierce, 2004; VandeWalle, Van Dyne & Kostova, 1995). Third, most studies of ESOs were conducted in western countries. Whether ESO is an effective incentive outside the western context is not clear. …

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