Shared Decisionmaking

notes on Dube, Arindrajit and Richard B. Freeman, “Complementarity of Shared Compensation and Decision-Making Systems: Evidence from the American Labor Market” in Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing, and Broad-Based Stock Options. Eds. Douglas L. Kruse, Richard B. Freeman, Joseph R. Blasi. (Chicago: University of Chicago Press, 2010).

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In their research, Freeman and Dube found that:

  1. New forms of compensation based on pay for group or company performance, or ownership of company shares have increased rapidly
  2. Compensation systems that base part of pay on company or group performance are linked with employee participation in decision making, suggesting that these institutions form a complementary package of employee-management relations
  3. Together, employee involvement programs and and shared compensation improve outcomes such as job satisfaction, attitude toward the firm, and the likelihood of staying with the firm.
  4. The highest outcomes occur when firms combine pay for company or group performance with an ownership stake in the firm and employee involvement committees.

Institutions that provide structure for shared decision making can include employee involvement committees (EI), works councils, quality circles, and team production. Workers can also become involved at the corporate level by serving on boards — this is legislated in Germany, and rare in the US.

Some demographic/statistics info:

Workers at companies with shared decision-making and compensation systems are better educated, more likely to be in the upper quartile of the wage distribution, more likely to be male, and more than twice as likely to be salaried than workers with none of the shared systems. In addition, the workers with all three forms of sharing are disproportionately professionals, salesworkers, and skilled trades persons, and are disproportionately employed in manufacturing and finance, insurance, and real estate, and are twice as likely to be in firms with over 1000 employees than those without any of these programs.

Firms that share financial rewards with employees and who have EI committees also have other “good” labor practices: personnel policies, open door policies, town meetings, and employee committees beyond EI committees.

The conclusions:

Shared compensation is positively associated with shared decision making, and combining shared compensation systems and employee involvement has greater impacts on outcomes than the systems separately. Since it is hard to square the effects of shared compensation systems with theories of individual behavior in which free-riding is important, [the] findings point to possible importance of corporate culture and related behavioral economic factors in determining employee activity.

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  1. […] like an ESOP, has negligible benefits on its own — it needs to be enacted along with other employee-involvement tactics in order to have the positive benefits it’s been shown to have. For example, the introduction […]



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