Do investments in human capital lead to employee share ownership? Evidence from French establishments

Abstract

Investments in human capital can create a hold-up problem whereby both employers and employees exploit the bargaining weaknesses of the other. Employee share ownership (ESO) can mitigate this hold-up problem because it can align interests, develop loyalty, signal good-will and lock in employees. Previous studies have shown positive relationships between company investments in human capital and the use of ESO consistent with this argument but have been unable to identify the direction of causality. Using panel data from the French REPONSE survey, the findings indicate that significant and continuous investments in human capital take place prior to the implementation of ESO.

Employee share ownership, training, and early promotion policy as a bundle in enhancing labor productivity: A test of the three‐way interaction effect

“…However, supporting our argument of ESO–training complementarity on labor productivity, studies show that the relationship between ESO and investment in training is significantly positive within the United States and European contexts (Ben‐Ner et al, ; Guery & Pendleton, ; Pendleton & Robinson, ; A. M. Robinson & Zhang, ). Furthermore, studies of HRM policies in over 30 countries also demonstrate that ESO provides a reward for employees for investment in training while binding them to the firm in the longer term (Pendleton et al, ; Pendleton, Poutsma, Van Ommeren, & Brewster, ).…”

“…On the other hand, employees also bear the risk of firm‐specific human capital training. This is because it will generate benefits only for the current employer but will have no value to other employers (Guery & Pendleton, ; Pendleton & Robinson, ). As a result, the employee's outside opportunities can be restricted by participating in firm‐specific human capital training.…”

“…Recently, there has been much interest in the complementarity between ESO and training in enhancing the productivity and performance of organizations (Whitfield et al, 2017). The first theoretical rationale for the positive interaction effect of ESO and training on productivity is that ESO schemes help to overcome the classic "hold up" problem that prevents firms and employees from making investments in training because of potential risks borne by both parties (Guery & Pendleton, 2016;Pendleton & Robinson, 2011;Whitfield et al, 2017).…”

“…Robinson & Wilson, 2006). In fact, there is a strong theoretical rationale for expecting positive synergistic complementarities among ESO, investment in training (Guery & Pendleton, 2016;Pendleton & Robinson, 2011;Whitfield et al, 2017), and early promotion policy (Rousseau & Shperling, 2003). However, previous studies have only focused on the two-way complementarities of ESO and training.…”

The adoption and termination of profit sharing for employees: does management’s attitude play a role?

“…If investments in the general or specific human capital of the employees play an important role in the firm's performance, profit sharing may be adopted to reduce the risks associated with these investments and, hence, to strengthen the incentives to undertake the investments (Green and Heywood 2011, Guery and Pendleton 2014, Robinson and Zhang 2005. On the one hand, an employer providing general training for employees bears the risk that the investment is wasted if employees leave the firm after they have the received the training.…”