Jaap J. ten Have
S1918133Faculty of Economics an
d
Business | Strategy & Innovation
Enquiry in the
Employee Share Ownership
programme in a Dutch small
Jaap J. ten Have
S1918133Faculty of Economics and Business
Strategy & Innovation
1
stsupervisor: Dr. Van der Eijk
2
thsupervisor: Prof. Dr. Faems
Enquiry in the
Employee Share Ownership
programme in a Dutch small
Abstract
Employee share ownership (ESO) is a strategic instrument that is rather unknown by small and medium sized enterprises (SME) in The Netherlands. This paper enquires in an ESO programme in a Dutch SME. This study will examine the effects of an ESO programme on three human resources management (HRM) components attract personnel, retrain personnel, and loyalty. Moreover, the innovation side is researched as well. I demonstrate that the ESO programme has, to a certain extend, a positive effect on retaining personnel. Besides that, it can be concluded that ESO has a positive effect on the loyalty of personnel. Furthermore, this paper proves why innovation is simply not influenced by the ESO programme and at what conditions it will help to attract personnel towards the firm. Key words: employee share ownership, retain personnel, compensation, loyalty, innovation, mixed method research, profit
Preface
“By searching, you can always find someone who made a well-sounding statement that confirms your point of view and, on every topic, it is possible to find another dead thinker who said the exact opposite.”
Nassim Nicholas Taleb
As far as I know, during my whole University period I was intrigued by all sorts of human resource management related instruments and especially employee share ownership or employee stock options that are mostly initiated to both enhance staff potential as well as the firm performance. The fact that a single strategy can alter the mindset of an organization towards a different kind of frame of mind fascinates me. The fact of the matter is that not a lot of organizations implement share ownership programmes in The Netherlands, let alone even have knowledge of these instruments. Consequently, my question is: what is the reason why businesses do not start programmes which ultimately strengthen both personnel’s intrinsic and extrinsic motivations and thus overall firm potential? I believe that this thesis will shed more light on this matter and inform firms that are classified as the small and medium sized enterprises, also known as the backbone of the Dutch economy.
Additionally, this employee share ownership strategy is applicable in my own realm too, since my brother and I own a business together for over six years now. Ergo, should we invest in our staff and, for example, a certificate program?
All in all, I would like to thank my family and friends for supporting me throughout my college years. The truth is that I got a lot of space to complete this master which I couldn’t do without that ma-jor contribution. To my parents; thanks for the financial contribution and the laissez-faire treat-ment. To my brother; thank you for your patience when I was ‘busy at the library’. To my friends; your knowledge set my bar even higher. To my supervisors, dr. R.A. van der Eijk and prof. dr. D.L.M. Faems, thank you for your feedback and time you had put into me to help me write this thesis, and finally, to my reader; I hope that you will enjoy my thesis and it would be an honour if it can be beneficial to your firm.
Executive summary
Employee share ownership (ESO) is defined as typically a portion of company shares which is reserved for employees and offered on privileged terms, or employees are offered options to buy their company’s shares after a certain amount of time. ESO is a strategic instrument that companies use for various reasons. These motivations arise because of a retiring owner, a management buy-out, or because the organization is restructuring. Although it has increased popularity in advanced economies such as Japan, USA and several countries in Europe, it still is rather unknown in small and medium sized enterprises (SME) in The Netherlands.
The empowerment of employees gradually shifted from almost no fringe benefits during the first industrial revolution, to a sort of abundance of fringe benefits in the current era. With this recent proliferation, the ‘war for talent’ fad is gaining popularity given that globalization made it very easy to attract talented personnel from all over the globe.
Essentially, the research background has led to the formulation of the following research question:
What is the influence of ESO on HRM components in an SME in The Netherlands?
Moreover, the following sub research questions are derived from the central question: 1 To what extent is ESO affecting decisions to join a firm?
2 What is the impact of ESO on retention and loyalty? 3 To what extent does ESO affect innovation?
4 What are general pitfalls and implementation characteristics? 5 Is ESO contributing towards a more loyal staff?
This research uses a mixed method research. It combined qualitative and quantitative methods to gather data to outline an entire view on the effects of ESO in an SME in The Netherlands. Basically, the quantitative investiga-tion will shed light on the HRM components by means of an online quesinvestiga-tionnaire. Through this quesinvestiga-tionnaire, the majority of employees were asked different questions on the effects of ESO on HRM components. Next to that, a qualitative exploration will determine pitfalls that could influence overall processes, and first implementation obstacles. This was established by way of interviewing both employees and employers in the firm.
These methods were processed and analysed in several different ways in order to provide the reader an entire view of this strategy. This report analysed the outcome of the online questionnaire by cross-tabulations. In addition, the qualitative data sheds light on implementation and pitfalls.
paradox. Employees do not stick with a certain firm once other job opportunities occur yet somehow feel the entrepreneurial connection with the firm. Thus, a switch towards a similar firm is easily made. We now also know that if an economy prospers, the ESO programme will probably do too. It will strengthen the position of the firm in the eyes of new employees. This is because of the fact that an ESO programme is part of fringe benefits which is seen as very appealing.
It seems that employees are less worried about the persistence of their jobs nowadays - at least in the consultancy sector. According to the staff, self-development is a primary factor to work at a firm. If that factor in one way or another has stagnated, one will comfortably pursue his destination in a different firm. It is because of the fact that the majority of personnel at this firm possess a high level of education. Therefore the promise of dividend on certificates is not of any principal influence. In short, a company with an ESO programme holds on to personnel a bit longer, however not for his entire career.
While the ESO programme has effect on two HRM components, the innovativeness of the firm does not seem to change. The fact of the matter is that the programme is too insignificant to change the minds of employees, due to the nature of the HRM component. The whole organization - board and employees - argue that the degree of innovation is different from people to people. Besides that, most employees already have a natural entrepreneurial mind, given that newly hired employees are required to possess such skills which is studied throughout the job application process.
Also, it seems that the loyalty aspect is affected too. The employers have more eye for the firm and, as mentioned in the literature review, ESO programmes in very small firms contribute even more, as opposed to larger organiza-tions. Given that in a small(er) firm everybody easily know one better, the ‘we’ feeling and loyalty towards the firm can steadily grow faster than multinationals.
Table Of Contents
1 Introduction
13
1.1 A brief history of the empowerment of the employee 13
1.2 Research question 14
1.2.1 Sub research questions 14
1.3 Scope and domain of research 14
1.3.1 Uncharted territory 15
1.4 Chapter outline of the paper 15
2 Literature review
17
2.1 Employee ownership 17 2.2 HRM outcomes 18 2.2.1 Attract personnel 18 2.2.2 Retain personnel 19 2.2.3 Loyalty 20 2.2.4 HR innovation 21 2.3 Innovation component 22 2.4 Pitfalls 22 2.5 Implementation 23 2.6 Summary 233 Methodology
25
3.1 Research strategy 25 3.2 Research design 25 3.2.1 Questionnaire 25 3.2.2 In-depth interview 26 3.2.3 Definition of an SME 26 3.2.4 Case description 273.3 Validity, reliability and generalizability 27
3.4 Summary 28
4 Data
29
4.1 Attract component 29 4.1.1 Attractiveness 29 4.1.2 Financial reward 30 4.2 Retain component 30 4.2.1 Retain motivation 304.2.2 Retain motivation by type of sex 31
4.2.3 Reason to retain 31 4.3 Loyalty component 32 4.3.1 Commitment 32 4.3.2 Connected 32 4.4 Innovation component 32 4.4.1 Inspiration 33
4.4.2 Data matrix interviews 33
4.5 Pitfalls 34
4.5.1 Quotes from intervies 34
4.6 Inplementation 35
4.6.1 Quotes from intervies 35
5 Discussion
37
5.1 Propositions 37 5.2 Literature review comparison 39
5.3 Summary 40
6 Conclusion
41
6.1 Theoretical implications 42
6.2 Managerial implications 42
6.3 Limitations and future research 43
7 References
45
Appendix I: the group interviews
54
Appendix II: individual interviews
65
1 Introduction
“Employee ownership is not a silver bullet to the economy’s ills, but it could be one solution to the problem of building a more sustainable economy built on long-term foundations.”
Nick Clegg, Deputy Prime Minister of the United Kingdom
An economical phenomenon of modern times is the empowerment of employees that is known as Employee Share Ownership (ESO). This method is rising in industrialized countries and emerging market economies (Pendleton, 1998). ESO turns out to be a common factor in several countries in the European Union (Uvalic, 1991), the United States of America (Blasi & Kruse, 1991), the United Kingdom (Millward et al., 1992), and Japan (Jones & Kato, 1995). In the 21st century, it is necessary to attract personnel with extrinsic incentives to triumph over the same hunger of direct - and perhaps indirect - competitors. The ‘war for talent’, which states that the possible lack of talent, knowledge, and skill of employees is a threat to a firm (Chambers et al., 1998), is becoming a priority again whenever a crisis declines and the conditions of the economy prevail. Although this method is on the verge of becoming a standard in Europe, we see that this phenomenon is relatively unknown in The Netherlands (Kaarsemaker, 2006). Approximately 25% of businesses implement a form of financial participation (SNPI, 2011). Moreover, the thoughts and motives of employees is not sufficiently highlighted in The Netherlands. When employers are better informed, this strategy gets more legitimacy in The Netherlands.
1.1 A brief history of the empowerment of the employee
The empowerment of the employee is forging for several centuries now. From the time that labour unions ap-peared, and thereby liberating employees (Haug, 2004), toward the more modern variant which first improved he lives of managers. Secondly the most recent version which enabled the ‘ordinary employee’ to be an owner of a company as well (Elloy, 2012). As mentioned before, this latter trend is rapidly rising in Europe. Recent ctivity in the north of Spain shows an interesting scenario caused by the fundamental principles of the Basks - sovereignty (Uranga & Etxebarria, 2000). One of those principles that is put to work is the empowerment of a whole organi-zation in Mondragon - from cleaning lady to manager - where employees have the possibility to buy shares of the firm (Freundlich et al., 2009). As a consequence, employees and businesses flourish because of the fact that less greed exists, the alienation between employees (and managers) diminishes, and it is, most of the time, crisis-proof (Davidson, 2012). Moreover, due to the fact that the firm stimulates the direct environment as well, the link be-tween corporations and, for example, universities are effortlessly put together (Freundlich et al., 2009). ‘People before profit’ is a mantra that could be essential for the forthcoming years. In essence, a marriage whichs unites neoliberalism and communism if you will.
This thesis will discover the effects of ESO on HRM and moreover the facts behind those reasons. This paper will therefore focus on a small and medium sized enterprise (SME) in The Netherlands, given that most of the current literature is focused on multinationals.
1.2 Research question
This thesis labels ESO as “typically a portion of company shares which is reserved for employees and offered on privileged terms, or employees are offered options to buy their company’s shares after a certain amount of time” (Poutsma, 2010, p. 40). In addition, three HRM components are classified as followed: loyalty, retain personnel, attract personnel. Furthermore, the innovation aspect is part of this research as well. In addition, this thesis will merely focus on those four relevant aspects since HRM outcomes originate in a variety of possibilities. Finally, pitfalls and implementation aspects will be studied to see what motives drive employees and employers to switch to an ESO programme.
All in all, the goal of this study is to expand the current literature, generalize theories on employee share ownership at a small and medium sized enterprise in The Netherlands, and try to understand and discover ESO in SME in The Netherlands. Therefore, the initial aim of this paper is to provide an insight to the effects responsible for the empowerment of employees through financial packages as well as the employees’ thoughts on this matter. With focus on an SME in The Netherlands, this thesis will follow the unusual path and emphasize on the smaller and medium sized enterprise, since normally studies tend to set larger, multinational corporation as focal point (Blasi et al., 2012; Pendleton et al., 2001; Poutsma et al., 2010; Lavelle et al., 2012). On top of that, this paper also offers the employer the ability to see whether their employees are in favour of the ESO strategy and see what their hon-est opinion is. In closing, this research can figure out if the employees are satisfied with the current model. The research question for this thesis is:
What is the influence of ESO on HRM components in an SME in The Netherlands? 1.2.1 Sub research questions
This section will give an overview of the sub research questions which are derived from the central question: 1 To what extent is ESO affecting decisions to join a firm?
2 What is the impact of ESO on retention and loyalty? 3 To what extent does ESO affect innovation?
4 What are general pitfalls and implementation characteristics? 5 Is ESO contributing towards a more loyal staff?
1.3 Scope and domain of research
innovations.This should reveal useful intrinsic and extrinsic motivations concerning the effects of ESO on HRM components. Also, for the sake of the magnitude of the thesis, it is limited to just one company to keep it simple and coherent.
The subject of ESO in SME in The Netherlands is rather unexplored. For that reason, this study also briefly concentrates on the pitfalls and implementations of this strategy which could be practical for those who desire to implement such a programme.
1.3.1 Uncharted territory
As mentioned above, this research emphasizes on one firm. It will not focus on multiple firms for the reason that gathering data on these firms take a long time. The data gathering technique of mixed method research consumes an awful lot of preparation, consensus, travelling to different firms, and the process of collecting data itself that is not possible to complete during the granted time for a master thesis. Although mentioned, I do not delve into the benefits of ESO such as tax reduction. Moreover, the focus lies on certificates since that is the most common programme for smaller firms. Employee ownership programmes such as employee stock ownership and profit sharing are excluded from this research. Furthermore, this study will not work with longitudinal (panel) data for the sake of time.
1.4 Chapter outline of the paper
2 Literature review
This chapter will first present the current literature on HRM components and innovations. Moreover, ESO’s pitfalls and implementations are described. Looking back on previous literature, we can establish that literature on this matter is mostly based on firms in the United States, Japan, and Europe. Unfortunately, the companies that issue shares in these countries are mainly multinationals - as mentioned in the problem definition. To clear up the variety of different variables, the following table provides a quick insight to upcoming material.
Author Variable Definition
Poutsma et al., 2010, p. 40 Employee share ownership “Typically a portion of company shares is reserved for employees and offered on privileged terms, or employees are offered options to buy their company’s shares after a certain amount of time, under favourable tax provisions.”
Core & Guay, 2001; Attract Start-ups and young corporations are able to attract high qualified employees
Oyer & Schaefer, 2005 by provide employees tempting compensations
Jensen & Meckling,1976; Retain Organizations can tie employees to their company and enjoy their fruits of labour
Rosen et al., 2005 for several more years than regular firms do in short of an ESO programme.
Bayo-Moriones & Loyalty The financial participation such as ESO and profit-sharing plans (PSP) do
Larraza-Kintana, 2008 contribute to the affective commitment in an organization.
Michie & Sheehan, 1999 Organizational innovation These practices involve team work, job rotation, quality circles, total quality management, high levels of training and innovative pay systems.
English dictionary; Pitfalls A hidden or unsuspecting danger or difficulty: the pitfalls of buying goods et al.,
Pendleton 2010 at public auctions. If a strategy of this magnitude is going to be implemented in an
organization, the powers that be are usually the ones that try to withhold change
Kruse & Blasi, 1995 Implementation A firm does not magically and automatically improve employee attitudes and be-haviour whenever it is implemented.
Table 1: relevant theory summarized
2.1 Employee ownership
In The Netherlands however, we see that most of the organizations that are not affiliated with the stock ex-change, present their employees so-called certificates. Consequently, it will slightly reduce the amount of en-titlements. Under these circumstances, it is much easier for companies to structure the amount of influence employees have. In the long run, the board of the ‘administration office foundation’ acts for the employees dur-ing the shareholders meetdur-ing. In this way, the company still has a possibility to take the company to the stock exchange (Van Melle & Van Beusekom, 1999). Besides that, companies will notice that certificates tend to have less challenging ‘rules of the game‘, and the administration of trading is simpler. (Van Melle & Van Beusekom, 1999).
2.2 HRM components
According to the vast available literature on HRM, numerous components can be described. The most common HRM components related to ESO are satisfaction and commitment. Next to these two components are attitudinal and behavioural, also known as psychological affects (ownership feelings, or psychological ownership). The majority of the studies recognize attracting personnel and retaining personnel as important factors in HRM out-comes. Furthermore, loyalty is seen as a vital component (Kaarsemaker, 2006).
2.2.1 Attract personnel
The literature confirms that there is reason to believe that ESO is used to attract personnel to an organization (Dewe et al., 1988; Lazear, 2000; Wilkinson, 2009; Kaarsemaker et al., 2010). In this case, the literature is mostly based on data from multinational firms and conglomerates. However, not only established multinationals use an ESO programme to obtain skilled workers. Start-ups and young corporations are also able to attract high qualified employees by provide employees tempting compensations (Core & Guay, 2001; Oyer & Schaefer, 2005). These benefits are in fact supported by Sanderson: “The reality is that talented people will always be able to find another job in any market, and if you lose your intellectual capital, you could be losing the future of the compa-ny.” (CBSNews, 2009). According to Oyer & Schaefer (2005), the employees’ beliefs are important to a firm due to the fact that an employees prospects in a firm can alter the course of the share value. However, if the people is a more optimistic employee, the whole firm benefits since others are more willing to invest in firm-specific human capital. Another interesting point that attracts employees is the tax-cut (Beatty, 2005; Poutsma, 2001).
Finally, a firm with share ownership programme may attract more risk-neutral and higher-ability employees might also influence the employees’ opinion of the firm (Sesil et al., 2002). Moreover, “firms with risky growth options also seek to attract employees that are relatively less risk-averse, since highly risk-averse workers are likely to avoid companies that tie a substantial proportion of their wealth to stock price” (Core & Guay, 2001, p.257).
Personnel will join a firm with an ESO programme for several common sense reasons. As Dewe et al. (1988) pointed out, such characteristics are: a savings mentality; an emotion connection with the firm; attracted by a financial beneficial point of view, faith in the companies future. As for the saving mentality characteristic, the ESO programme can be seen as a way to save money, apart from traditional methods, for example, a bank savings account or national bonds. In other words, the employee allocates its personal savings into an ESO programme or even borrow money from a bank - where the interest on the loan is lower than the stock’s dividend or compensa-tion (Castells & Rodbell, 1992).
executive to his new company (Fee & Hadlock, 2003).
Findings in the work of Dewe et al. (1988, p. 19) state that “those workers who see such schemes as a way of enhancing workforce commitment are more likely to favour joining”. In other words, the employees are more willing to take part if they sense that such strategy increase organizational commitment. In addition, those who gain insight in the difficulties of the strategy, i.e. in understanding or keeping up their payments, are less willing to join the firm.
Basically, an ESO is useful to attract high quality personnel and also those who are enthusiastically willing to share profits with employees in the firm (Lazear, 2000).
On the other hand, as Blasi et al. (1996) stated, this issue can go separate ways: employees who are more productive will be attracted to performance-dependent compensation systems, of which ESO is one exemple. Nevertheless, these non-executives could also be attracted to payment systems that are sensitive to individual performance, and non-executives with lower qualities may be drawn towards group-based systems, thus shared with coworkers. In addition, relationships are noticed in workgroups where non-executives in the group have comparable job positions (Dickerson et al., 2010). Similarity-attraction theory, the concept that individualists would rather work with workers with the same characteristics (Tsui et al., 1992), is repeatedly mentioned to describe these dynamics. If companies implemented an ESO programme for the reason that it will attract non-executives in an already tiny labour market to “secure their expectations of continued returns to shareholders, then the broad-based stock options can be viewed as a success” according to Sesil et al. (2000, p. 5). Blasi et al. (1996) showed that group incentive schemes will be more appealing in smaller workplaces given that the free-riders problem is heavily re-duced.
2.2.2 Retain personnel
Considering that an ESO programme is established in a multinational firm, it goes without saying that organizations can tie employees to their company and enjoy their fruits of labour for several more years than regular firms do in short of an ESO programme (Jensen & Meckling, 1976; Rosen et al., 2005). Furthermore, indirect equity payouts to personnel as part of the option based compensation plan are essential to firms that need to finance personnel with limited internal liquidity. Such firms might also encounter high costs (Babenko et al., 2011). According to Oyer & Schaefer (2005), one of the main reasons companies use the strategy of ESO is to retain personnel at firms since ownership normally have a vesting period (Kole, 1997). During that period, the employee is not able to collect or sell his shares. Next to that, the value of shares can hold on to their value whenever the employees decides to stay. The costs of switching and replace employees is high and therefore a burden on the profits of a firm (Oyer, 2004). A firm’s culture can change if an ESO programme is installed since share option is normally associated with either managers and/or owners. This might give an indication towards employees, considering that this could establish a co-operative culture (Sesil et al., 2002).
firm’s value and postpone paying tax on that money when you invest it (Tama, 2007).
As for the organization, even despite of the given economic conditions, the retention of talented, irreplacea-ble key employees is vital for the long-term prosperity and health of a firm. When the economy recovers, the necessity to hold on to these key employees happens to be even more sensitive, given that other firms will look for their talents and abilities. Consequently, facilitating an incentive in the form of certificates or share ownership compensation is one way to illustrate the firm’s preference to retain this human resource capital (La Var Harline, 2013).
Another antecedent to keep talented, high quality personnel in the firm and therefore supply their employees with ESO like incentives, is to use this programme as a substitute for cash compensation (Core & Guay, 2001). The downside is that a decline in certificate or stock prices can decrease the capacity to retain talented personnel. Moreover, these poor conditions can have a ripple effect on retaining personnel and especially on the participators that are close to their retirement, who may become more conscious and aware to the contemporary ups and downs and leave the organization much earlier than expected (Brandes et al., 2003). This being said, the reality is that companies are not responsive enough towards the mass outflow of employees while the need for older employees will be high to keep the substantial replacement within bounds (Remery et al., 2003). According to DeLong (2004) this leads to a potential disaster to all companies.
As for the organization, retaining personnel is far less expensive than the whole process of hiring new, qualified personnel. The direct and indirect expenses related to the substitution of key talents can rise through the roof. For one, when the available knowledge and knowhow will go to the competitors, the damage is inconceivable. Next to the loss of expertise, the costs related to (1) replacement talent (i.e., relocation), (2) the time and effort put in by management in order to select, recruit, and interview new colleagues during precious company time that could have been spent on the firm’s core activities (3) a blank spot in the new, available position - whereas a possibility might occur where other colleagues need to either fill in that position or cover extra work, and (4) learning curve losses as a result of talent renounce and new talent being inaugurated (Brandes et al., 2003).
Organizations require personnel to remain longer in a firm. Core & Guay (2001) predicted the significance of retaining personnel is essential in companies that demand higher-quality managers and in companies where human capital is a relatively more important factor of production. Smith & Watts (1992) hypothesize that companies with considerable expansion opportunities call for higher-quality managers, and Core & Qian (2000) predict that lower-level employees obtain more options at companies where expansion opportunities are more strongly related to human capital.
In conclusion, there is a great body of literature available that indicate that organizational commitment lead to decreased intentions to turn over (Blau & Boal, 1989; Farrell & Peterson, 1984; Rusbuit & Farrell, 1983; Williams & Hazer, 1986).
2.2.3 Loyalty
Moreover, ESO programmes provide an organization more involvement and responsibility (Rosen et al., 2005). Inversely, however, firms that offer group compensation may also attract less able personnel where some employees are able to free-ride on the efforts of others workers (Lazear, 2001; Poutsma, 2001).
Loyalty and performance often go hand in hand with employee owned firms, since it is based on sociological and social-psychological motives connected to feelings of ownership, commitment, and performance (Buchko, 1993). These theoretical perspectives can be identified, which was reviewed by Klein (1987) a few decades ago. The first theoretical perspective is the coined intrinsic satisfaction model of employee ownership, constructed by work of Tannenbaum (1983) and Long (1978a, 1978b). As stated by this model, the ownership programme itself will gen-erate and increase loyalty and contentment towards the firm. To give body to this perspective, research has been conducted to compare employee owners with employee non-owners (Long, 1978a), as well as match up to con-ventionally-owned firms (Greenberg, 1980; Rhodes & Steers, 1981). The second perspective is that proposes that it’s ownership per se that intensifies loyalty, however the chance of personnel (as part owners) to influence directly the firm’s actions through the decision-making process. In reality, control and influence are perceived as mediating the ownership/attitude relationship. Research in this realm that investigates the relationship between ownership, control, and employee attitudes are completed by Long (1978b, 1979) and Klein (1987).
The last model, the extrinsic satisfaction model, suggests that the financial aspect of employee ownership influences attitudes and, thus, financial rewards are satisfactory. Apprehended from preceding papers, this perspective enquires into the personnel’s understandings of the advantages of ESO and relates this to organizational commitment. Although limited, research has established weight for the model (Klein, 1987; Rosen et al., 1986).
2.2.4 HR innovation
In the past few years, more studies have been done to practices known as organizational innovation. These practices involve team work, job rotation, quality circles, total quality management, high levels of training and innovative pay systems (Michie & Sheehan, 1999). The scholars discovered that companies that use innovative work practices are more willing to innovate than firms not practising this method. A lot has been written regarding the advantage of complementary practices over individual ones in terms of the effect on productivity of organization (Ichiowsky et al., 1997). Nevertheless, other findings noticed that actual application of individual practices towards a firms strategy will boost production of the organization (Shipton et al., 2006).
2.3 Innovation component
Holmstrom (1989) suggested a different clarification for why incentive schemes that motivate innovation must show open-mindedness for project with lack of success. He states that performance estimates for innovative movements are turbulent. Thus, to stimulate innovation, the essence should depend on compensation schemes that are less responsive to performance. Similarly, Aghion and Tirole (1994) state that the result of innovation actions are unforeseeable and, hence, difficult to contract upon estimates. To conquer these strains, business consultants state that facilitating a culture that permits freedom to experiment and tolerates failure is essential to motivate innovation among employees of large corporations. Farson and Keyes (2002) and Sutton (2002) produced several examples of innovative corporations that embrace such cultures - i.e. IBM, Google, and 3M.
(Wijnberg, 2004). After the influential work of Schumpeter, innovation has evolved into a more sophisticated system. It can be defined as the generation, development and adaptation of new ideas, processes or product aiming to enlarge competitiveness of organizations (Damanpour, 1996). Moreover, Damanpour (1996) separates innovation in radical and incremental. Radical innovation result in elementary modifications in the activities of a company or organization and noteworthy alterations of change for prevailing practice while incremental innovation will produce a minor amount of change for prevailing practices. Incremental changes’ essential features are directed at intensifying the process and will strive to make it more efficient, improve quality and ultimately decrease costs. Jacobs (2007) makes a distinction between three types of innovation: transaction innovation, process innovation, and product innovation. Within the transaction innovation, products play a central role. Transaction innovation will attract customers and sell products, so think of marketing, publicity and sales. Process innovation focuses more on quality and efficiency which ultimately must lead to more cost effectiveness and improved products. Product innovation is the single most important of those three. Without this, the other two do not have a purpose. Product innovation may be confided to just a style or design change, it can also be a whole new concept on a current or new product.
2.4 Pitfalls
As a strategy is implemented into an organization, certain pitfalls happen that could jeopardize the process. Common pitfalls that have been recorded in the past are set as an example to help establish different perspectives on this matter.
If a strategy of this magnitude is going to be implemented in an organization, the powers that be are usually the ones that try to withhold change (Pendleton et al., 2010) and therefore are actively contributes to the firms’ inertia. Because of the fact that influence and power in a firm is reconstructed after implementing this strategy, the ‘mighty’ union could consequently lose those privileges. Nevertheless, Pendleton (2005) showed that in one case the union representation and ESO co-exist, still the union had little participation in the design, implementation, and operation of employee share plans. Although unions may endanger the strategic process (Ramsay, 1977), we now see that the same unions are more approving this programme (Lowitzsch et al., 2009) due to the fact that the very same unions hold their level of influence. We see, however, that residual suspicion on their side still appears (Pendleton et al., 2003).
to a culture which endures an effect that puts of a shirking outcome and improves the relevant cognitive potential of employees (Kim, 2005).
According to Poutsma (2001) the ESO programme signifies as a riskier investment than other employee partic-ipation programmes, due to the fact that it is undiversified. However, when the firm contributes with different fringe benefits it may be limited and set the ESO as an additional source of income, next to basic wages.
2.5 Implementation
There are certain drawbacks when a company aims at implementing an ESO strategy. As Kruse & Blasi (1995) state - the authors reviewed 25 studies on employee attitudes, behaviour, and performance - a firm does not magically and automatically improve employee attitudes and behaviour whenever it is implemented. Besides that, employers possibly face, in their attempts to carry out the ESO programme, ‘general’ resistance to change from employees (Markus, 1983). In addition, the likelihood that a significant transfer of decision-making authority exists is minimal. Nevertheless, there is a slight chance that management may lose control of certain aspects of organization due to the fact that the employees are shareholders in the firm. However, management is in almost all cases responsible for the initiation of the programme and therefore also in charge of the structure of the scheme (Poutsma, 2001). Also, Kim (2005) indicated that it may take considerable time and effort to influence the employees to take on changes. As a consequence of implementing an ESO programme in a firm, the time consumed to communicate, persuading, influencing, and transfer knowledge is to educate staff in dealing with the new arrangements. Kim (2005) furthermore mentioned that after implementation, the employees could possibly fail to deliver proper ideas and suggestions that should stimulate the company in e.g. 1) the working environment to improve productivity, 2) product innovations to decrease production costs, or 3) improved overall profits. In conclusion, the firm may be presented with a substantial amount of operating costs once the ESO method is implemented. Costs such as administrative personnel, communication programmes, potential outside experts, and tax obstacles (Poutsma, 2001). As claimed by Poutsma & Van den Tillaart (1996) this argument affects smaller companies in particular.
2.6 Summary
3 Methodology
This chapter will discuss the methodology of this paper. First, the research strategy is explained. Subsequently, the research design is described.
3.1 Research strategy
The goal of this research is to investigate the effects of ESO on HRM components in an SME in The Netherlands. As mentioned before, the current literature is focused on multinationals instead of SME’s. For that reason, this study is an explorative thesis given that it is useful for finding theoretical ideas that might be relevant for practical problems. The goal of exploration is to ‘combine theoretical and practical knowledge to formulate a theory’. As a consequence of an explorative research, this thesis will use the input of the online questionnaire to structure and further guide the in-depth interviews. Therefore, the flow of information during the in-depth inter-view will be greater and both employees and employers can be confronted with descriptive information.
The purpose of this paper is to shed more light on the effects of ESO on HRM components. To give strength to this, a literature study and exploratory study in one SME in The Netherlands will be executed with help of a mixed method approach. Here, the reasoning is that the interviews are supposed to give a broad understanding about the views and insights of participants regarding the research variables. To ensure a more comprehensive insight, an online questionnaire is established to capture the opinions and thoughts of the majority of staff.
3.2 Research design
This thesis uses a mixed method research approach. It combines qualitative and quantitative methods (Jick, 1979; Kirk Downey & Duane Ireland, 1979). As Cooper & Schindler (2008) mention, the two different types can bal-ance each other out.
This paper will research both quantitative and qualitative data to outline an entire view on the effects of ESO in an SME. I believe that a quantitative investigation will shed light on the HRM components by means of an online questionnaire. Next to that, a qualitative exploration will determine pitfalls that could influence the overall pro-cesses, and first implementation obstacles. Naturally, it will also uncover aspects which are derived from the online questionnaire.
3.2.1 Questionnaire
This questionnaire was filled in individually and took place over the Internet which ensured a faster and more accurate form of processing data. This questionnaire was cut into five pieces to ensure that the participant was fully focussed on the matter at hand.
primarily because of the fact that the introduction embodies several control questions to seek a precise number - e.g. how many years are you active in this organization.
The close-ended questions are given on the five-point Likert scale, as mentioned above. The bulk of the actual questions are based on the research of PhD dissertation of Mr. Kaarsemaker (2006) in combination with my own questions - which derived from the research question and sub questions - and a few additional questions from the firm itself that were gathered from a meeting prior to the questionnaire. Preceding the launch, the trial questionnaire was tested by a managing director.
3.2.2 In-depth interview
With assistance of the data that derived from the online questionnaire, the face-to-face in-depth interviews are held to give a broad understanding regarding the reasons behind ESO such as pitfalls and implementation. Besides that, the semi-structured research method gives the participants (employees and employers) the opportunity to speak freely about the influence of ESO on HRM components. For the experts/employee interviews, I selected one male worker with more than 15 years of experience within the company and one female worker with around 4 years of working experience in that firm. In total, I spoke with 10 peoples within the firm. As for the experts to gather data from, three (2 males, 1 female) directors were selected. The average length of these two interview were approximately 60 minutes and were held at the office of Company X. In both cases the language was Dutch. It was later translated into English, with assistance from an audio tape to ensure that all information was processed correctly and according to the exact words of the interviewees.
The open questions were deliberately designed to answer at least one HRM component and one pitfall or implementation related insight. In that way, the methods behind motivations could be studied. The interview started off with questions regarding the three HRM components and innovation. Later on, I asked questions regarding pitfalls that could influence processes, and first implementation obstacles.
I also individually spoke with 5 other employees at the firm. The individual conversations took place over the telephone and lasted around 20 - 30 minutes. These conversations gave me insights on ESO and the (unwanted) effects of the programme. Moreover, the interviewees expressed their opinion on matters such as possible changes in the programme and (unwanted) side effects.
Interviewees Job description Sex
#1 Business Leader Male
#2 Consultant Female
#3 Consultant Female
#4 Researcher/Consultant Male
#5 Supporting staff Female
#6 Business Leader/Consultant Male
#7 Senior Consultant Male
Table 2: overview interviewees
3.2.3 Definition of an SME
as organizations up till 250 employees. To classify the SME definition even more, three types are presented, which are micro organizations that hold up to 10 employees and below, small-sized organizations that concern 10 to 50 employees, and finally medium-sized enterprises that employ 50 to 250 employees. This investigation concentrates on a medium-sized organization to generate the necessary data.
3.2.4 Case description
The firm is classified as consultancy agency. This type of firm is chosen due to the presumed abundance of ESO companies in this sector. As a consequence of a large quantity of employees with high education, the ESO strategy is therefore implemented on a greater scale as opposed to other sectors. The definition of the medium-sized enter-prises that employ 50 to 250 employees is used to gather data. In The Netherlands, the greater part are companies that employ consultants have around 50 employees. Via a web page containing company profiles, one firm was selected that confirmed the characteristics needed for this research, having around 50 employees. The firm is nicely divided when I comes to gender. In this research, the ratio between gender is precisely 50 percent. A similar mean applies for age groups within the firm where 34 percent is in the age-group 20-35, 29 percent falls into the 36-50 group, and 37 percent represents the 51-67 group. As for the job description, the majority is advisor, around 50 percent. Next to that, the supporting staff is 32 percent, and business leaders account for 18 percent. The company in this case, is a little over 20 years active in the consultancy sector. The staff working at this firm, is rather diverse to when it comes to ‘years active in this firm’. We see three groups that signify this observation: 1 till 3 years active account for 26 percent, 12 till 15 years make up around 21 percent, and lastly more than 20 years active in this firm form 24 percent. All in all, a pretty divers group of different ages and active years in the firm. Concerning the contract hours, the majority 58 percent, holds a 36-40 hours a week contract. Besides that, 26-35 hours a week accounts for 32 percent.
With respect to the questionnaire, it was first deployed under the whole staff, from business leaders to advisors to supporting staff. Here, no one was excluded from this research method. Second, the in-depth interview was held. In total, 12 people were interviewed. The first in-depth interview took place with 3 business leaders - containing of 2 males and 1 female. The second in-depth interview occurred with the help of 2 employees - one male who worked for quite a long time at this firm and one female, only active for 4 years. Lastly, 7 employees talked over the phone.
3.3 Validity, reliability and generalizability
The question concerning this matter is: is this study generalizable and is this elsewhere applica-ble to other companies in The Netherlands - or even beyond the Dutch border? I believe that the fol-lowing factors are relevant to other firms as well: 1) HRM outcomes - e.g. loyalty and retaining per-sonnel - are listed by Kaarsemaker (2006) as common factors, hence multiple firms share the same characteristics, 2) the fact that this study will focus on an SME instead of multinationals, ought to provide sim-ilar SMEs the same constraints, 3) the firm is not completely 100% owned by the employees, 4) in the long run, several companies could face the same problems if firms attempt to implement this strategy, and 5) the firm is not listed on the Dutch stock exchange. Albeit the possible matters above are hard to predict in advance, the results should shed more light on this subject and will therefore be discussed in the last chapter of the thesis. Finally, by replication, my theory on multiple firms can boost the validity.
To construct validity, this research sets it’s attention to a firm which is a good representation of a ‘general Dutch consultancy SME’ to ensure that the firm is not mistaken as a multinational. The company was chosen because of the following reasons: 1) the Dutch SME’s do not have an abundance of ESO, 2) this selection allows this research to focus on a specific type of firm in one single industry, 3) no external factors can influence the outcome - which could be the case if I carry out a multiple case study, and 4) for the sake of the magnitude of the thesis, it is limited to one firm to keep it simple and coherent.
According to Yin (2003), a goal in a research is to diminish the inaccuracy and biases in the study. This study is partly cross-sectional and will focus on rational thoughts from employees and employers at a specific time. It is likely that once the online questionnaire or in-depth interview will be repeated, the same outcome will be acquired. However, it is hard to say with 100% confidence that a certain participant will chose the same outcome twice. Nonetheless, I feel that this method is reliable enough for this thesis. Because of the fact that the online questionnaire was held via the Internet, which makes it easier to document and inspect by external reviewers if necessary.
For the reason that the primary focus of this paper is to provide an insight into motivations responsible for the empowerment of employees through financial packages, the first (quantitative) section will generate the majority of data. In order to collect data, the personnel of both SME’s took an online questionnaire. The sample consisted of 37 employees, with a response rate of 73%. On top of that, the background of the firm is to some extent diverse, due to the fact that it now operates for more than two decades. As a consequence, this firm shows a group of employees that were active from the start and on the other hand new and younger employees, which is a satisfying starting point to cross-reference.
3.4 Summary
4 Data
This chapter presents the data collected by both qualitative and quantitative research, gathered at a Dutch consultancy firm. To collect significant results, this paper follows a mixed method. The combination between the two methods is perfect for this thesis, given that both methods enhance each other. Here, the reasoning was that the interviews were supposed to give a broad understanding about the views and insights of participants regarding the research variables. To ensure a more comprehensive insight, an online questionnaire is established to capture the opinions and thoughts of the majority of staff. Implementation show the practices during the introduction of this process. The pitfalls will inform the businesses which negative aspects to expect after implementing the system.
Descriptives
To fully understand the reason behind the relationship of ESO on HRM components, the section will brake down the results from the online questionnaire and delve deeper into the matter with the help variables such as age, job type and sex. The cross-tabulation technique is helpful in exploring and comparing two or more classification variables. Characteristics such as age or job description have multiple values and thus are best visible in a cross-tabulation. This method could enhance the reasons behind the relationship of ESO on HRM components for it is important to inform the reader the, for example, difference in interpretation of ESO by function. The following section will present the reader an overview of the online questionnaire. This research took place in an ESO company with around 38 respondences. Luckily, the male / female ratio is precisely 50/50. If needed, comparisons betweens the sexes can be made. The quotes were obtained via the interview over the telephone, the questions were based on the descriptives.
4.1 Attract component
As for the ‘attract’ component, 12 questions were asked. The tables below represent 4 out of 5 tables since these results appear to inform us with relevant information. The remaining tables can be found in the appendix.
4.1.1 Attractiveness
4.1.2 Financial reward
I choose this firm because of financial advantages
Strongly disagree Disagree Neutral Agree
Male % within sex 21,1% 36,8% 36,8% 5,3%
Female % within sex 36,8% 52,6% 5,3% 5,3%
Total % within sex 28,9% 44,7% 21,1% 5,3%
Table 4: financial advantages
To give the previous statements more body, the table above shows that financial advantages are fairly ex-cluded in the decision making process. Even though a few agree, the choice of the mass was either strong-ly disagree or disagree and still quite a few neutral opinions. The crucial point here, is that the finan-cial aspect is conflicting concerning the two sexes. The figures above might give the impression that financial advantages are of less importance to females as to males. However, there was no statistically significant difference between groups as determined by one-way ANOVA (see table 4 below) at 95% Confidence Interval for Mean.
Table 5: financial advantages
Males show more signs of neutrality as opposed to the decisive females which are, again, more outspoken.
4.2 Retain component
As for the ‘retain’ component, 13 questions were asked. The tables below represent 4 out of 5 tables since these results appear to inform us with relevant information. The remaining tables can be found in the appendix.
4.2.1 Retain motivation
Histogram 10 in the appendix shows the results from the question: ESO is the main reason why I stay longer in this firm. Remarkably, no one agreed to this statement. It seems that the ESO is not a factor in the
4.2.2 Retain motivation by type of sex
The table above is by far the most diverse of this descriptive section. The question in relation to this graph is “the culture that part-ownership creates, is the main reason to remain active in this firm”. We see a difference in the type of sex (see table below). However, there was no statistically significant difference between groups as deter-mined by one-way ANOVA (see table 5 below) at 95% Confidence Interval for Mean.
Table 6: financial advantages
It appears that females do not feel that this statement is true, given that merely 1/5 is agreeing with this statement and 50% disagrees with this question. The males in this firm seem to like the fact that ESO is creating such an atmosphere and would like to remain active in this firm longer.
4.2.3 Reason to retain
As for histogram 12 in the appendix, the majority agrees with the following question: my colleagues are the main reason why I stay at this firm. The supporting staff (secretary, assistants etcetera) agree with a full 100% on this matter. It appears that for this group, the colleagues (work atmosphere) are one of the most important factors to stay active in this firm.
Concerning the consultants, the answers are rather diverse, although the majority tends to agree on this subject as well. Regarding the business leaders, the larger part (+/- 90%) agrees with this question. For most of the employ-ees, the financial aspect will determine future outcomes and weigh into the decision-making process whenever the question pops up ‘will I stay at this firm?’. A financial aspect plays a part in the effect of ESO on retaining personnel. If the money poured into the certificate programme has no significant return on investment, personnel can argue to move on.
4.3 Loyalty component
As for the ‘loyalty’ component, 15 questions were asked. The tables below represent 2 out of 4 tables since these results appear to inform us with relevant information. The remaining tables can be found in the appendix.
4.3.1 Commitment
Histogram 14 in the appendix represents the results of the following question: because of ESO, I feel a real own-er in this firm. It seems that the diffown-erences between males and females is rathown-er small. Although female appear to be more neutral on this matter. According to the one-way ANOVA test, there was no statistically significant difference between groups (see table 6 below) at 95% Confidence Interval for Mean.
Table 7: ANOVA test on commitment
However, in the individual interviews, their loyalty towards the firm was almost unquestionable. Especially during ‘crisis’ times, when the economy is down or even in a recession, it appears that the employees really show their loyalty to the firm and seek to end a year with profits. As one employee said: “my loyalty is very high. Just like the other consultancy firms, we also have some rough times during this crisis. I am a relatively young person, so I could have made another choice and work for another company, but I didn’t. I feel a sense of responsibility to get this firm out of the crisis.”
4.3. Connected
Histogram 13 in the appendix, the figures related to the question “ESO is the only reason why I am still con-nected to this firm”. Notably, the majority (strongly) disagrees with this question and feels that ESO does not have the influence on major decision to stay or leave the firm.
4.4 Innovation component
As for the innovation, 8 questions were asked.
The graph above represents the related question: the ESO programme manifests ideas and motivations for innovation. Looking at the graph above, we immediately see some real differences between the two sexes. It seems that females are almost always disagreeing with this statement, given the fact that they are voting for almost 80% on at least disagree. Also, the females appear rather neutral on this matter as well. On the other side, the males are relatively more neutral on this matter.
4.4.1 Inspiration
Finally, the graph above is related to the following question: I work with less effort when I do not possess certificates of Company X. Although this statement is rather straightforward, still a small number of people voted for neutral or agree. However, the mass chooses to strongly disagree for the most part. This firm is quite on the same page as for the influence of ESO on innovation. It also depends on the amount of certificates one has. It seems that those with less certificates, work the same amount of time, and still work hard.
4.4.2 Data matrix interviews
Based on the descriptives above, acquired by an online survey, the following questions were asked to delve deeper into the subject. The results are displayed below.
1) Do you think that ESO contributes to new and innovative ideas?
2) Does the compensation scheme facilitate a culture that stimulates experimentation?
“No. Like I said before, I am inspired by the projects and people of this organization, not because of the certificate programme. I still work hard if no programme is in place.”
“No I do not think so. Not connected to the certificate programme. I do not see the link. Without the programme you will innovate too since you are trying to survive. Creativity will come because of the urgency within the market. We need to develop something to get ahead of others.” “To a certain extent, a certificate programme will change the structure of a firm a little bit, so people are more at ease. Therefore, people are a little bit more adventurous. However, employees will not innovate just for their own profits. They would do it to pass their targets.”
Construct Interview employees
ESO & Innovation
Entrepreneur
Inspiration
4.5 Pitfalls
In retrospect, pitfalls are common once an organization makes the decision to change it’s structure and start executing a different strategy. If we look back on the literature review, we can state that most of the literature was obviously written for large multinationals and therefore not of real benefit. The SME that is represented by Company X is not heading towards inertia and is far less jeopardizing the overall process, which in the case of large firms could be more problematic due to the number of employees. According to Kaarsemaker et al. (2003) the programme may not work optimal if participation in the firm is low. The opposite exists in Company X, since hardly any out of the 51 employees possess certificates. Also, the differences in the amount of certificates could lead to the free-riders effect (see ‘amount’ construct in the table below). First, the firm underestimated the information flow towards the employees. It is vital to inform the staff with every move and give - transparent - information in full detail (see ‘honestly’ construct in the table below). The speed of delivery is also important. Second, the vision and the fundamental ideas regarding the certificate programme should never loose sight. Whenever a firm puts an end to the flow of information, the programme can be interpreted otherwise (see ‘honestly’ construct in the table below). Third, the balance in the certificate programme is quite important. Given that one people with a large number of certificates decides to abandon the firm, the company is required to pay that peopler (see ‘fringe benefit’ construct in the table below). As a consequence, the programme is flooded with a large chunk of certificates - ‘de-mand’ in economical terms. To some extent, this example above determined the recalculation of the price value. In closing, during crisis times the programme is stagnating.
Attributively to the semi-constructed interviews, additional pitfalls are listed below.
4.5.1 Quotes derived from interviews
“The difference in the amount of certificates could lead to an argument. Because of the fact that some people have 20.000 share and relatively new employees only 600. At a time, the whole staff of this company needed to - because of the decline in sales - sacrifice 10% of their wages so that the company can profit again. However, the whole staff declined in wages and once the firm started to make profits again, the peoples with those +/- 20.000 certificates were making a lot of dividend again. That’s not how it should be, that’s not fare. That doesn’t bind people to the firm. Yet the amount of certificates doesn’t affect the hierarchy in this firm. Everybody is still on the same level and the one with more certificates doesn’t have more rights than others.”
“During 2004 and 2008 we achieved good results. At that time, we had the obligation to inform our employees. After successes, we treated it more and more as fringe benefits. In retrospect, we feel that we didn’t succeed in enhancing the entrepreneurship side of this programme. It became more of an employee instrument than supporting entrepreneurship. Employees saw it more or less as: I will put some money into this programme and some money will come out. Two years ago we found out that the entrepreneurship didn’t succeed as we initially had foreseen. So in conclusion, we neglected to stimulate the entrepreneurship part.”
Construct Interview employees
Amount
Honesty
Fringe benefit
Dividend
“If you do it too fast, the reactions will be quite heavily. The employees shouldn’t get the idea that some manager is trying to pull a trick out of his sleeve and bring them in discredit.”
4.6 Implementation
Similar to the section above, the implementation fragment was established after semi-structured interview with both employees and employers. In the case of Company X, the implementation part was as following. The up-coming years of the certificate programme went according to plan, since the employees did not depart to other consultancy firm (see ‘participate’ construct in the table below). So contrary to the literature, the implementation part of the programme was dissimilar. Although it did not magically improve employee attitudes and behaviour as one could expect, the employees were enlightened from the very first minute and thus more motivated to “make this programme work” (see ‘responsibility’ construct in the table below). The ‘general’ resistance to change did not occur. Besides that, as described above, the management did not lose control in certain aspects of the organization. Furthermore, employees could possibly fail to deliver proper ideas and suggestions that could stimulate the compa-ny in e.g. 1) the working environment (improve productivity), 2) product innovations (decrease production costs), or 3) improved overall profits. At Company X, this is not the case. The organizational structure is flat, therefore management is easy to access (see ‘hierarchy’ construct in the table below). As mentioned by employees, the culture in the company will thrive the staff towards excellency. The type of environment created will stimulate the employ-ees and thus improve productivity, innovations, and overall profits (see ‘commitment’ construct in the table below).
4.6.1 Quotes derived from interviews
“At a certain point in time, this company was divided and we were, promptly, a consultancy firm. On that point, no one was the owner of this firm. The choice to get hold of money was either borrowing or we can transfer some employees into owners. The latter choice was executed. In this first years, everybody got hold of certificates since the prices were very low at that time. At that time, the management board could have decided to buy the firm, since there were the board of directors. However, they did not. The board deliberately choose to let the employee participate, namely for the commitment aspect and to improve the involvement in the firm.”
“Yet the amount of certificates doesn’t affect the hierarchy in this firm”. Everybody is still on the same level and the one with more certificates doesn’t have more rights than others.”
Construct Interview employees
Participate
Retain
Hierarchy
Responsibility
Commitment
“Before the ESO programme, a lot of people came and quickly left again. And those people had great potential and were good consult-ants. And to bind those people longer to the firm, this certificate programme was a solution. The other motivation was that ones the company had good result, the employee had good results as well. And people saw that back in the profit shares. It was bit by bit going up and those messages, those figures were positive messages. People enjoyed it. It enhances the joy in work and getting those results in your firm, your company. In the end, it was virtual success because the prices are at a very low point at this moment. But it gave a good feeling.”
“However, people feel that they are also responsible for the firm. And they realize that if the performance is less, it will have conse-quences for them - if they can stay whether or not. Normally, these issues were blamed on management yet in this firm, they realize that such measures are necessary.”
4.7 Summary
5 Discussion
This chapter will provide the reader an exploration of the impact of ESO, quantitative as well as qualitative, which we will delve deeper into. Based on the insights of the interviews and quantitative data, the discussion has led to propositions. These propositions can be used for further investigation on this topic. Besides propositions, this chapter will also discuss a literature review comparison.
5.1 Propositions Attract
According to the qualitative and quantitive research, the effect of ESO on attracting personnel is hardly of any influence. Most of the personnel choose for this firm because of intrinsic motivations such as pleasant co-workers, nice atmosphere, challenging projects, a firm that suits your experience, management philosophy, and is active in a certain type of market and its customers. The majority experience the ESO programme as a fringe benefit, not a primary reason to join the firm. In the end, the extrinsic factors (including ESO, but mostly salary) should be decent, however the intrinsic motivation is key in the decision-making process.
In comparison with the literature, the opposite occurred. The literature review concealed that several studies mentioned that an ESO programme will help attracting personnel towards a firm. (Dewe et al., 1988; Lazear, 2000; Wilkinson, 2009; Kaarsemaker et al., 2010). The start-ups and new companies could issue some form of ESO and therefore have more liquidity given that the money will not go to large salaries (Core & Guay, 2001; Oyer & Schaefer, 2005). However, the majority of staff answered that the attract component will not assist in the decision-making process. It is merely seen as a fringe benefit next to salary.
Therefore, we can conclude the following proposition:
P1: ESO and its effects are not a sufficient benefit that will help to attract personnel to an organization Retain
To a certain extent, ESO and especially the culture that is created at Company X will assist in retaining personnel. The ESO programme itself is not the main reason to stay at a firm because the programme is too light to make a significant impact on the decision-making process to stay. However, the fact that owning certificates makes you part-owner does increase the odds of retaining personnel. The psychological effect is perceived as very useful to motivate and retain personnel. Also, the fact that the companies’ profits will not go to (anonymous) shareholders, has a positive influence on personnel. The fact that part-ownership creates a certain culture, contributes in the decision-making process. Because everybody will receive a bonus when the firm produces profits, the culture changes because of that. The employees feel more responsible, have better relationships with colleagues, develop themselves, and experience fun projects.
The lions share of employees do not own a large amount of certificates that could influence the decision to stay at this firm or leave. Therefore, if employees want to leave, the financial part does not influence the decision.
Moreover, the major part of the employees have a higher education. This is the reason why employees can switch easier to other, related firms if the quality of the projects and the overall excitement is gone.
