Employee financial participation and corporate social and environmental performance: Evidence from European panel data

Abstract

Compensation and benefit practices are mainly considered as instruments to align employee behaviour to an organization's strategic goals, such as economic outcomes. Going beyond this economic focus, this study examines whether and how employee financial participation, may drive corporate sustainability performance (CSP; i.e. social and environmental performance). We investigate the relationship between employee share ownership, stock option and profit‐sharing plans, on the one hand, and CSP, on the other hand. In addition, we investigate the relationship between narrow‐based employee share ownership plans (only eligible for top management) and broad‐based employee share ownership plans (all employees eligible), on the one side, and CSP, on the other side. Using a unique European panel dataset, the results indicate that companies with (broad‐based) employee share ownership plans portray higher CSP, while companies with profit‐sharing plans exhibit lower CSP when there is no share ownership plan present. Also, the positive effect of broad‐based employee share ownership plans on CSP is magnified when the employees own a larger stake in the company. The results indicate that employee share ownership increases stakeholder orientation, strengthening the mutual interests of the organization and employees to long‐term investments in terms of CSP, at the same time broadening their orientation to long‐term external stakeholders’ interests.