Why Ownership Motivates
Various business models and compensation models cater to the concept that employee ownership is a highly valuable approach to generate employee motivation. Through providing employees a stake in the company, be it through shares of stock, variable income models, or through partnerships or coops, each employee will have a direct stake in the financial and operational success of the organization.
As an extrinsic motivator, the simple capital returns of ownership will play a role in empowering employee commitment. As a direct recipient of some share of the profit, the employee will recognize a direct correlation between their efforts and their returns. From an intrinsic point of view, employees who feel a sense of ownership of the organization will similarly feel the accountability, pride, and fulfillment that comes from growing that business into a successful venture. Considering the strong sense of intrinsic and extrinsic incentives attainable through employee ownership, it functions as an excellent motivator.
How to Empower Ownership
As mentioned above, there are a number of models and reward mechanisms that can create a sense of ownership. Some of the more common methods include:
- Commission – Consider a car salesman. The employee contract stipulates that any sale of a vehicle will result in a total bonus of 20% of the overall profit on that vehicle or 2% of the sales price (whichever is higher). This salesman now has a direct stake in the organization's revenues, and is motivated to contribute to the bottom line due to an extrinsic reward (the commission).
- Coop – A more extreme example would be a coop. Coops function off of the basic principles of shared ownership, which makes them an ideal example for this discussion. In a coop, every employee has an equal stake in the company, assuming both equal risk and equal reward. In a way, every single individual within the coop is an owner of the organization itself, and intrinsically and extrinsically motivated to optimize performance and achieve the best results.
- Franchise – Another interesting form of ownership is a franchise. Franchising is essentially the process of a parent organization selling the rights to a given brand and product line to an external owner (usually in another region or country). The frachisee will have complete ownership of their own branch of the organization, and thus will have a strong incentive to succeed.
- Stock Options – Perhaps the simplest and most common example of shared ownership would be stock options. Many publicly traded organizations offer stock options to some or all of their employees. All this means is that some employees get a small percentage of financial ownership of the company (usually quite small). When the company performs well, it is likely that the stock price will increase and the shares each employee holds will appreciate in value. This can be seen a motivator.
Theoretical Support
Vroom's Expectancy Theory
One useful motivational model from psychology is Vroom's expectancy theory. Under this perspective, motivation is derived through the pursuit of expected and desired outcomes. At its simplest, this theory assumes that there is a certain amount of effort an employee will exert. This expression of effort will anticipate a certain degree of performance. That degree of performance will result in a desired outcome. The value of that desired outcome for the employee must be relevant. Combining all of this, employees exert energy to perform under the assumption that they will achievement objectives which result in a desirable outcome.
Social Cognitive Theory
Bandura's social cognitive theory functions on the premise of self-efficacy. This simply means that there is a strong correlation between an employee's feeling of autonomy and capacity to achieve results, and their overall level of motivation and performance. Employees who feel both capable of a task, and who have ownership of the outcomes of that task (i.e. rewards, be they intrinsic or extrinsic), will be more likely to perform well.