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The Psychology of Employee Ownership – why does it work?

Employee Ownership

The Psychology of Employee Ownership – why does it work?

By , January 20, 2020
psychology of employee ownership

As long ago as 1991, researchers have suggested that employee ownership could induce a sense of psychological ownership; influencing employee behaviours and attitudes. Further research demonstrated that feelings of ownership are “natural to humans,” and can develop into a variety of different things. The authors went on to define psychological ownership as a state of mind ‘in which individuals feel as though the target of ownership or a piece of it is “theirs”’ (i.e. it is mine). The core of psychological ownership is the feeling of possessiveness or of being psychologically “tied” to an object. A sense of ownership can come from actual ownership, which in turn can affect attitudes and behaviours, then business performance.

On the other hand, a lack of awareness of the impact of an employee’s actions on the value of shares, possibly due to insufficient information from management, is likely to render the line of sight between individual performance and rewards in the form of share ownership rather blurred.

The underlying model and theory behind the ladder to equity model we utilise with clients is listed below and is covered in more detail here. 

  1. Employee – earning income (salary/wage/hourly rates).
  2. Income model – the first step on the ladder then is to boost that income – paying bonuses, commissions on sales, incentives.
  3. Profit share – providing a share of profits to employees as an additional incentive.
  4. Equity – employee transitions into an equity ownership position within the business they work for.
  5. Control – employees end up in a position of control – acquire a seat on the board, take over management or CEO role.

The model looks to gradually introduce equity ownership; moving employees through the business model, understanding the financial operation of the underlying business, measuring and focusing on key performance indicators (KPIs) and being rewarded based on the achievement of those KPIs which drive profit and performance.

Having employees think and act like business owners is about psychological ownership. Employee Share Ownership Plan (ESOP) is the most effective structure to enable that ownership.

If you’d like to discuss introducing an ESOP within your business, please get in touch with one of our Accredited Advisers

Craig West

Craig West

Executive Chairman | Succession Plus

Craig West is a strategic accountant with over 20 years of experience advising business owners. His background as a CPA in public practice has provided invaluable experience in the key issues of concern to business owners.

In March 2014, Craig was appointed Executive Chairman of the SME Association of Australia, Australia’s largest small business organisation representing over 300,000 business owners.

In October 2014, he was awarded the Exit Planner of the Year at the Exit Planning Institute Annual Conference in Texas, USA, due to his innovative development of an exit planning process to help business owners maximise business value and achieve a successful exit.

Craig’s proprietary structure - a Peak Performance Trust - has won the Australia-wide award for the Employee Share Ownership Plan of the year twice in four years.

In November 2018, Craig launched SME Experts in partnership with Mark Bouris’ Mentored on Podcast One and quickly grew the monthly podcast audience to over 26,500 downloads; in October 2019, he released a new podcast focused on medium-sized businesses - Mid-Market Matters.

In July 2021, Craig joined the NSW Committee for STEP (Society of Trust & Estate Practitioners) – focusing on advising families across generations.

Craig has also launched a SaaS platform, Capitaliz (which captures the 21-step process), to assist other advisers internationally deliver advisory services at scale.

In November 2021, Craig was appointed Executive Chairman of NSW Leaders, a business mentoring group for leading NSW businesses.

In July 2022, Craig West received the award of Doctor of Business Administration for his research thesis titled “Examination of the key factors driving business exit options in Australian Small and Medium Enterprises.”

Craig is passionate about encouraging business owners to think strategically, maximise the value of their business and achieve a successful exit.

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