34th Annual Ohio Employee Ownership Conference update

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Creating An Ownership Culture

The research is extensive, and increasingly without controversy - employee-ownership by itself will not increase employee satisfaction, motivation and performance.

What makes for a high-performing company? How do you build an ownership culture that generates value for the company, wealth for employees, and quality of life in our communities? All the way back in the 1990s, the Department of Labor found that high performing companies share the following common characteristics (and they still hold true today):

  • Give workers a stake in the performance of the organization through employee ownership and gainsharing;
  • Create employment security strategies that recognize the value of workers to long-term economic performance;
  • Push responsibility down to front-line employees, often by organizing work into self-managing teams;
  • Provide workers with the information necessary to exercise a high level of autonomy and discretion;
  • Build worker-management relations on trust, mutual interest, and cooperation;
  • Focus on satisfying customers, not simply shareholders; on improving quality, not simply reducing costs; and on building organizations that adapt easily to market change;
  • Encourage workers to learn new skills through skill-based pay and pay-for-performance compensation systems;
  • Invest in training and retraining to develop workers as critical business assets, rather than treating them as costs to be minimized; and
  • Provide workers with safe and supportive work environments.

Ownership+ Participation + Information + Training = Higher Performance

Research has consistently shown (nicely summarized here by the NCEO) that providing equity ownership to employees is not enough - real participation and cooperation matters.

The transformation of workers into owners requires cultivating a genuine sense of ownership where the employees take the responsibility of ownership seriously and their actions contribute to the company’s success. This process obviously does not occur overnight. Developing an ownership culture among your employees means seeing that they get what you already have: equity, a say in how things get done, information and training. Employees need to understand company financial reports and develop their decision making, communication and problem solving skills.

Ownership

Equity makes a big difference. Consider the difference between renting and owning a home. Unlike a person who rents, the home owner has equity in his or her investment and therefore will have an incentive to increase the value of that investment. After all, how many renters do you know that paint the outside of their residence? Just like a homeowner, an employee-owner has a greater incentive to drive the value of stock in his or her company. This could result in reducing scrap, generating creative ideas on how to improve a process, and producing better quality products. This ownership could be in the form of stock options, a cooperative or an Employee Stock Ownership Plan (ESOP). Although rewards like profit-sharing and bonuses are great supplementary incentives, they do not provide employees with an ownership stake.

Participation

Motivated employee-owners need the opportunity to express their ideas for improving the business to management.Effective communication requires that managers listen, appreciate dissent and tolerate opposition. Likewise, supervisors need to lead rather than order, assist rather than discipline, and teach rather than threaten. It is the responsibility of employees to make suggestions without confrontation, learn basic business concepts, and work cooperatively with others. Open channels for input should be maintained throughout the company. To initiate increased levels of participation, you might consider creating problem solving teams or shop floor committees.

Whether your company is employee-owned or not, the goal of participation is maximum feasible employee involvement in all areas of company decision-making, from the shop floor to the boardroom. It is through participation on decision making bodies that your employees can truly accept greater responsibility.

Information

An owner needs access to financial and other strategic information to make sound business decisions. Responsible employees also need access to company information like financial reports, scrap rates, customer satisfaction indicators, and on-time delivery records. Of course information is only useful if it is communicated effectively. This information can be in the form of regularly published newsletters, annual or quarterly meetings to review business issues, and company financial statements. Part of this communication process requires that the receiver to be able to understand the information presented. This requires a long-term commitment to education and training.

Training

If you want to create a successful ownership culture at your firm, just informing employees is not enough. They also need to understand the information they receive in order to be informed and involved owners. Opening your books to employees is meaningless unless your employees understand how to read financial reports. Meetings to improve quality lead nowhere if the participants lack effective meeting skills. training programs that can help you begin building, or reinvigorate, the ownership culture at your firm.

Education is a process of learning, and coordinating an effective training program requires a long term commitment. Training non-managerial employees in problem-solving and group process techniques helps make employee participation programs work successfully.

Getting Started

It is relatively inexpensive and highly cost effective to undertake some combination of employee participation, training, open-book management, and financial incentives to increase company competitiveness. However, family business owners who are seriously considering the establishment of an ownership culture to increase performance may want to begin by examining their own personal philosophical beliefs. They might also want to discuss the challenges and potential rewards with other business owners who have implemented policies to foster an environment that allows employees to think and act like owners.

Questions?

The OEOC has a number of programs and resources to help you create your ownership culture - contact us at 330-672-3028 or oeoc@kent.edu

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