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Employee ownership: Why we need it?

Macro Principles

The purpose of employee ownership is to provide a means by which the mass of employees can become direct co-owners of the businesses where they work.

Employee share ownership has been developed as a way of reforming one of the key problems confronting the free enterprise economy: how to share the ownership of society's capital resources among the widest number of people without compromising either private ownership or economic freedom. Employee Share Ownership preserves both of these principles. It does so by providing employees with the means to purchase a personal stake in the enterprise that employs them. In sum, employee ownership aims to assist employees to become genuine 'capitalists'.

Without the kind of widespread joint ownership offered by employee share plans, there is no sure ground upon which to reconcile the old hostility between capital and labour. This is because the basis of that antagonism has been precisely the ownership - and (or) control - of capital on one side and the lack of capital on the other. For this reason Employee Share Ownership Plans (ESOPs) offer an historical opportunity to address a source of major social and economic dislocation and conflict and to strengthen, in a fundamental way, the free enterprise system.

Micro Principles

There are certain implications that flow from employee ownership, and the structure of employee share plans, which provide additional incentives for strong, pro-ESOP policies.

Productivity

Research indicates that companies whose employees share in the ownership of the business decisively outperform their rivals whose employees are not shareholders in the firm.

Companies with high levels of employee ownership demonstrate higher measures of commitment to the interests of the business by their employees and, consequently, higher productivity and profit levels, than their peers with lower levels of employee ownership, or none at all. (See Appendix A for a summary of the key studies undertaken in the United States on this question.)

Savings

The long-term shortage of savings in an ageing Australian community, identified in the Intergenerational Report 2002-03, seems to require the development of a more sophisticated approach to national savings policy.

In addition to superannuation, a serious national savings policy would seem to demand a range of savings instruments designed to meet a spectrum of different savings objectives. In this, ESOPs would have a vital role to play. ESOP savings can clearly be distinguished, on one hand, from obligatory, managed, indirect investments in a super fund and, on the other, from discretionary, personal share investment in businesses over whose fate the investor has no control.

ESOP savings offer both the directness of a personal share investment and a measure of influence over the performance of the investment. (We expand on savings issues in Appendix E.)

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