Increasing the Perceived Value of Employee Ownership, Bear Stearns, Employee Ownership and the Best Companies to Work For

The March 28, 2008 Employee Ownership Update is online and discusses the following:

• Bear Stearns and Employee Ownership
• Why Sharing Ownership Could Be More Painful to You then Valuable to Participants
• Nominate Your Company for the Fortune 100 Best Companies to Work For List
• Great Game of Business Conference April 30-May 2

The Update discusses the differences between behavioral economics and classical economics, and how a dollar given to employees in ownership has a lesser perceived value. It also suggests what a company can do to make ownership feel more real:

When a company grants a stock option that won't vest for several years, and, if it is a private company, has no specific way to become liquid, employees will discount the present value of the option by well over half of what an accountant would say the present value is. When employers set up an ESOP that also vests over time and does not pay out until some time after termination, employees may not see it as real money.

So what can companies do? Part of the answer is to understand that people are not just being dense. They are just being people and probably responding in much the same way that business owners would if they were in a similar situation. Sharing ownership still can be a very valuable tool; just don't expect employees to view it the same way a someone who is sharing the ownership will. Second, spend a lot of time educating people about issues like the risk/reward ratio, the time value of money, and what kinds of guarantees are in place for their ownership to be liquid. Finally, get people who have benefited from you plan (or another plan if yours is too young) to come talk about what they did with the money, making the ownership more concrete.

The Update discusses Bear Stearns and employee ownership. As discussed in Countering Negative ESOP Coverage with the Facts, the Update reiterates that the Bear Stearns situation is different than Enron:

There is no way to know just know many other employees were defined as "key" or how much ownership they had, but it is safe to say few of these people will be in the situation of many Enron workers who were left unable to retire even in modest circumstances. So while the situation is indeed very painful for Bear Stearns employees, it is quite different from the numerous "stock-drop" problems that left workers with severely depleted 401(k) accounts.

As we discussed in 2008 Great Place to Work Trends – Employee Ownership and Workplace Flexibility, the Update notes that "Employee ownership companies again comprised over half the stock corporations on the Fortune 100 Best Companies to Work For list."