Employee Share Ownership as Moderator of the Relationship between Firm-Specific Human Capital Investments and Organizational Commitment**

By Kaarsemaker, Eric C. A. | Management Revue, October 1, 2008 | Go to article overview

Employee Share Ownership as Moderator of the Relationship between Firm-Specific Human Capital Investments and Organizational Commitment**


Kaarsemaker, Eric C. A., Management Revue


Tight labour markets and changing employment relationships make employees with high levels of firm-specific knowledge, skills, and abilities less dependent on and committed to their employer. Companies need to work harder in order to attract and retain employees and protect their mutual human capital investments. Using a dataset with survey data from employees in 11 companies (N = 777), the present study shows evidence that employee share ownership, provided that it is taken seriously as reflected by the presence of a small number of other HRM practices in the company, might be a worthwhile avenue for managers to explore.

Keywords: human resource management, employee share ownership, organizational effectiveness, firm-specific investments

1. Introduction

I recently visited a relatively young, small and specialized mechanical engineering technology company to talk to employees about their thoughts on the founder and CEO's plan to implement an employee share ownership scheme. All of the employees I talked to had engineering degrees, most of them at the university level. Some even had a PhD. The founder and CEO considered that sharing ownership with the employees would motivate them to stay with the company and would attract new employees in a currendy very tight labour market for this type of engineers. Only by attracting and retaining the right employees could the company follow its growth strategy.

Without exception, the employees were positive about the idea of implementing an employee share ownership scheme in the company. Consistent with this, the workforce also appeared to have an already relatively high sense of ownership. This was particularly so for the employees who had been with the company the longest. However, in contrast, they appeared to have only very low levels of commitment to the company. Some of them had been thinking of leaving, maybe even to start their own company. They felt that it would not be difficult for them to leave the company and either start for themselves or find a similar job elsewhere. But at the same time, they felt they had invested a significant amount of time and energy in the company already, and they would prefer a situation in which they would have the opportunity to become co-owners of the company. They liked the idea of becoming co-owners not simply for financial reasons, but in particular because they also wanted more influence.

All else being equal, employees, as they are involved in work and in the organization they work for, develop feelings of ownership (Pierce/Kostova/Dirks 2001, 2003). These feelings can be aimed towards for example their work, their job, and the organization they work for as a whole. Employees invest time and energy and often they acquire knowledge, skills, and abilities that have less use or no use at all beyond the organization they currently work for. This kind of knowledge, skills, and abilities is usually referred to as "firm-specific," as they have less or no value in other organizations. The value to the company is usually high, though, and employees with this kind of knowledge, skills, and abilities are not easy to replace. It is therefore worrisome for organizations if employees do not feel that their firm-specific knowledge, skills, and abilities make it more difficult for them to leave.

This paper analyzes the influence that employee share ownership has on the effects of "investments in firm-specific human capital." The analysis answers the question whetiier employee share ownership is an effective vehicle for converting feelings of ownership into actual commitment to the organization, and for attracting and retaining employees with firm-specific knowledge, skills, and abilities in the affirmative. In other words: within the limitations of the data, the paper's findings confirm that employee share ownership helps retain employees with highly firm-specific knowledge, skills, and abilities and therefore helps warrant further investments in firmspecific human capital. …

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