The effect of employee share ownership on employee commitment and turnover: comparing the cases in Britain and South Korea and the role of the economy

• DOI: http://doi.org/10.1111/irj.12272
• Date: 01 November 2019
• Author: Sukanya Sengupta,Yeongjoon Yoon
• Published date: 01 November 2019

The effect of employee share ownership on

employee commitment and turnover:

comparing the cases in Britain and South

Korea and the role of the economy

Yeongjoon Yoon and Sukanya Sengupta

ABSTRACT

Despite the consensus in the employee share ownership (ESO) literature for the need

to explore contexts that influence ESO outcomes, studies examining two important

factors, national context and status of the economy, are limited. In this study, the au-

thors compare the outcomes of ESOs in Britain and South Korea during economic

expansion and downturn. The results demonstrate that, during an economic expan-

sion, the effect of ESOs in increasing employee commitment is stronger in South

Korea, while their effect in decreasing employee turnover is stronger in Britain. How-

ever, during an economic downturn, the authors find no evidence for these effects in

both societies. The findings lend support to the contingency perspective in managing

ESOs and provide meaningful implications and guidance to the literature.

1 INTRODUCTION

The benefits associated with employee share ownership (ESO) schemes have been

widely acknowledged by policy makers and practitioners. However, extensive re-

search to date has shown mixed results regarding the effects of ESO on employee

commitment and turnover. The mixed results could be attributed to the presence of

contextual factors. Consequently, ESO literature acknowledges the need to examine

how contextual factors influence ESO outcomes (e.g., Caramelli and Briole, 2007;

Mowday et al., 2013; Sengupta et al., 2007; Sengupta, 2008). Past studies have exam-

ined various contexts such as types of ESO schemes (Addison and Belfield, 2001;

Fernie and Metcalf, 1995), the amount of organisational restructuring accompanying

ESO implementation (Keef, 1998; Long, 1982), employee participation in decision

making (Fernie and Metcalf, 1995; Goldstein, 1978; Katz et al., 1983; Long, 1980;

1982; McNabb and Whitfield, 1998; Sengupta, 2008; Pendleton, 2001), union pres-

ence (Sengupta, 2008), industry (Kruse, 1992) and establishment size (Pendleton,

1997; Blasi et al., 1996).

❒Yeongjoon Yoon, College of Business Administration, Texas A&M University—Central Texas, FH

318, 1001 Leadership Place, Killeen, TX 76549, USA and Sukanya Sengupta, School of Management,

Royal Holloway, University of London, FE 145 Moore Building, Egham TW20 0EX, UK.

Correspondence should be addressed to: Yeongjoon Yoon, Assistant Professor of Human Resource

Management, College of Business Administration, Texas A&M University—Central Texas, FH 318,

1001 Leadership Place, Killeen, TX 76549, USA.

Email: yoon@tamuct.edu; yeongjoon.yoon@gmail.com

Industrial Relations Journal

ISSN 0019-8692

© 2019 Brian Towers (BRITOW) and John Wiley & Sons Ltd

50:5

–6, 486

–516

Human resource management (HRM) and ESO scholars emphasise the role of na-

tional contexts and economic systems as key moderators of ESO effectiveness (e.g.,

Caramelli and Briole, 2007; Mowday et al., 2013; Kim and Patel, 2017). The studies

exploring these two key factors, however, are limited. This needs to be addressed for

several reasons. First, the global nature of operations for today’s organisations calls

for managing employees under different national institutions and cultures and mov-

ing beyond the current focus of the US and Western paradigms (Caramelli and Briole,

2007; Richardson and Nejad, 1986). Moreover, the impact of economic status on

ESO effectiveness is relevant because of recent economic turbulence (e.g., 1997 Asian

crisis, 2000 IT dot-com bubble crisis and the 2008 financial crisis).

In this study, we demonstrate the possibility that national contexts and economic

systems can moderate the effectiveness of ESO and through different mechanisms.

We do this by examining the relationships between ESO and employee commitment

and between ESO and employee turnover in Britain and South Korea (hereinafter

Korea) in two different economic phases (i.e. during economic expansion and down-

turn). The results of this study indicate that the effectiveness of ESO is realised

through different mechanisms in the two countries. The results also illustrate that

the effectiveness of ESO can only be actualised during economic expansions.

Although we do not directly measure and test national contexts and economic sys-

tems in this study, the results demonstrate the need to integrate these two factors in

future studies of ESO. Through this, we provide meaningful implications and guid-

ance to the literature.

2 THEORETICAL BACKGROUND AND RESEARCH QUESTIONS

2.1 The benefits of employee share ownerships

Employee share ownerships provide two advantages in managing employees. First,

ESOs align the interests of organisations and their employees, thereby fostering em-

ployee commitment. This is labelled as the golden path effect (Sengupta et al.,

2007). It is underpinned by the agency theory (Jensen and Meckling, 1976). The

agency theory argues that employees seek to maximise their own interests, rather than

the organisation’s interest, and thereby have a tendency to shirk responsibility (Fama,

1980; Fama and Jensen, 1983; Jensen and Meckling, 1976). However, ESO schemes

can align employee interests with that of the organisation by allowing employees to

partake in the financial prosperity of the firm (Blasi et al., 1996; Conte and Svejnar,

1988; Gamble et al., 2002; McNabb and Whitfield, 1998; Pendleton, 2001; Pendleton

et al., 1998; Renaud et al., 2004; Sesil et al., 2002). Specifically, ESO ties the long-term

income prospects of the employees with the financial prosperity of the firm and

thereby fosters employee commitment. Therefore, workers become profit conscious,

reduce waste and increase their effort levels (Alchian and Demsetz, 1972; Pendleton,

2006; Richardson and Nejad, 1986: 235). These changes, in turn, lead to superior

organisational performance.

Another theoretical argument for the golden path effect lies in socio-psychological

approaches (Klein, 1987). These approaches suggest three possible pathways for

ESOs to promote employee commitment: an intrinsic satisfaction from owning

shares, extrinsic satisfaction from financial returns of share ownership and instrumen-

tal satisfaction from participating in organisational decision making (Klein, 1987).

ESOs in Britain and South Korea and the role of the economy 487

© 2019 Brian Towers (BRITOW) and John Wiley & Sons Ltd