RESEARCH FINDINGS ESOPs
The research on ESOPs indicates that they increase employee satisfaction.^86 But their
impact on performance is less clear. For instance, one study compared 45 companies
with ESOPs against 238 companies without ESOPs.^87 Companies with ESOPs outper-
formed those without, both in terms of employment and sales growth. Other studies on
companies with ESOPs have shown disappointing results.^88 More important, ESOPs can
sometimes focus employees on trying to increase short-term stock prices, while not wor-
rying about the impact of their behaviour on the long-term effectiveness of the organization.
ESOPs have the potential to increase employee job satisfaction and work motiva-
tion. For this potential to be realized, employees need to experience ownership psy-
chologically.^89 Some employees may not be fully aware of how their performance affects
company performance, or they may not feel that they have any control over company per-
formance. So, in addition to having a financial stake in the company, employees need
to be kept regularly informed on the status of the business and also have the opportu-
nity to exercise influence over the business.
Linking Productivity-Related Incentives to
Motivation Theories
Variable pay is probably most compatible with expectancy theory predictions. Specifically,
under these plans, individuals should perceive a strong relationship between their per-
formance and the rewards they receive, and thus be more motivated. They should also
be more productive.
However, the evidence is mixed, at best.^90 One recent study that followed the careers of
1000 top economists found that they put in more effort early in their careers, at a time when
productivity-related incentives had a larger impact.^91 A recent study of Finnish white col-
lar employees found that higher levels of pay and more frequent payments positively
affected productivity, while lower levels of pay did not improve productivity.^92 Other
studies generally support that organizations with profit-sharing plans or gainsharing plans
have higher levels of profitability and productivity than those without.^93 But there are
studies that question the effectiveness of pay-for-performance approaches, suggesting
they can lead to less group cohesiveness.^94 Although some researchers note that much
of the evidence supporting pay for performance “is based on anecdotal testimonials and
one-time company cases, rather than on methodologically more rigorous empirical stud-
ies,”^95 a number of researchers have shown that the connection between pay and per-
formance is linked to productivity improvement.^96 This is supported by a recent study
in Canada that looked at both unionized and non-unionized workplaces, and found that
variable-pay plans result in “increased productivity, a safer work environment, a better
understanding of the business by employees, and little risk of employees losing base pay,”
according to Prem Benimadhu, an analyst with The Conference Board of Canada.^97
Using pay for performance can be difficult for some managers. They worry about
what should constitute performance and how it should be measured. There is also some
belief by managers and employees alike that wages should keep pace with inflation,
independent of performance issues. Other barriers include salary scales keyed to what
the competition is paying; traditional compensation systems that rely heavily on specific
pay grades and relatively narrow pay ranges; and performance appraisal practices that pro-
duce inflated evaluations and expectations of full rewards.
Of course, from the employees’ perspective, the major concern about pay-for-per-
formance programs is a potential drop in earnings. Pay for performancemeans employees
must share in the risks as well as the rewards of their employers’ businesses. They are
not guaranteed the same salary each year under this system. A recent Conference Board
of Canada study may ease some fears about this particular concern. There was no evidence
that pay for performance led to a reduction in salary in unionized settings. Instead, it
Chapter 4Motivating Self and Others 129