Employee share ownership and attitudes in the context of the large multinationals: some new evidence

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1 Employee share ownership and attitudes in the context of the large multinationals: some new evidence Marco CARAMELLI GSCM Montpellier Business School CREGO - Centre de Recherche en Gestion des Organisations University of Montpellier II France Marco.Caramelli@iae.univ-montp2.fr Abstract The social-psychological literature on employee share ownership concerns mainly small businesses. However the practice is also widespread in large multinationals. Such companies represent a specific context since employees generally own a small percentage of capital and the employee individual contribution has an insignificant impact on corporate performance. This study examined the effects of employee ownership in the context of French large multinationals. The results showed that employee shareholders differed from non-shareholders in terms of work attitudes. A structural equations model was specified to test the Klein s (1987) 3 models in a specific context. Results indicated the greatest support for the instrumental model as in past evidence. Some support was found for the extrinsic model even if financial parameters were not found to be the key elements in the attitudinal effects of EO. However, contrarily to past research, the intrinsic model was also corroborated in two different ways. 1

2 Employee share ownership (EO) is a phenomenon that has aroused a considerable interest both in scholars, practitioners and policy-makers since the mid-1980s (Kuvaas, 2003, p.193; Pendleton, Wilson, & Wright, 1998, p.99). This reflects in part a lack of performance of industrialized countries which has stimulated interest in alternative labor compensation schemes that would link part of employee compensation to the performance of the firm, thereby leading to better corporate performance (Jones & Pliskin, 1988, p.1). According to the (US) National Center for Employee Ownership, there were over 9,000 EO plans in the United States in 2006, covering over 10 millions employees and representing about $600 billions (see In France, in 2005, about thirty percent of the listed companies had an EO plan; the average percentage of capital held by employees was 4% which represented a total market capitalization of some 40 billions (Arcimoles (d') & Trébucq, 2005, p.3). Also, the number of employee stockholders in France has growing tremendously in the last few years, from about in 1998 to 2.3 millions today (FAS, 2006, p.148). Research on EO has typically studied the effects of such a practice on corporate performance. A first body of research analyzes the relationship between EO and corporate performance assessed through different indicators (Arcimoles (d') & Trébucq, 2003; Bradley, Estrin, & Taylor, 1990; Jones & Pliskin, 1988; Kruse & Blasi, 1997). Concerning the processes by which EO may affect performance, authors mostly refer on changes in employees work attitudes and behaviors (Ben-Ner & Jones, 1995; Blasi, Conte, & Kruse, 1996; Kruse, 1996; Welbourne & Cyr, 1999). A second body of research consists of studies that have addressed the particular issue of the attitudinal effects of EO. Overall, this body of research suggests that stock ownership itself rarely appears to lead to major changes in individual work attitudes (Pendleton, 2001, p.155), and that the positive effects of EO are related more to the capacity of such a management practice of being rewarding in terms of financial returns (extrinsic model) and rights of participation (instrumental model). The social-psychological literature on employee share ownership concerns mainly small businesses. However the practice is also widespread in large multinationals. Such companies represent a specific context since employees generally own a small percentage of capital and the employee individual contribution has an insignificant impact on corporate performance. The purpose of this research is to integrate past research on employee ownership and to develop and test empirically a model that would explain the effects of share ownership on 2

3 employee attitudes, thereby investigating to what extent the existing evidence applies to large multinationals. We examined intrinsic, extrinsic and instrumental employee perceptions of stock ownership and their effects of work motivation, job satisfaction, affective organizational commitment, turnover intention and ownership preferences in four large French multinationals. An explication of the stock ownership plans under study and a brief review of previous theory and research precede the presentation and discussion of the research results. EMPLOYEE SHARE OWNERSHIP IN FRENCH MULTINATIONALS The French companies have implemented a large variety of forms of financial participation as a result of an historical process reflecting a tradition on support of such practices by the French policy-makers. As a result, France is with the United-Kingdom, the European country which has developed the most extensive legal and fiscal framework for financial participation in general and EO in particular. The different incentives implemented in the French legislation explain largely the development of EO in this country (Guillaume, 2006, p.17). EO in France is generally managed through a Plan d Epargne d Entreprise-PEE, which is deferred a collective employee benefit plan invested in stock. Stock ownership is generally indirect in the sense that the employees do not own directly the shares but there is a trust savings fund (Fonds Communs de Placement d Entreprise-FCPE) which is the legal owner; the employees own actually some shares of the fund. The savings plan may receive different sorts of contributions. Direct v.s. indirect ownership In the direct ownership system, the employee is directly the owner of the stock of his/her company in a personal account within the PEE, while in the indirect system, the employees own shares of the FCPE. In the latter case, funds may be either diversified or invested in the shares of the employer. The employees can usually choose between several funds invested more or less in shares of the employer. By the French law, funds invested for less than 10% in the employer s stock are considered as diversified funds. If the percentage of employer s stock is between 10 and 33%, the fund is called employee ownership diversified fund. Finally, if the fund is invested for more than one third in the employer s stock it is called employee ownership FCPE. In direct EO, employees vote directly their stock, while this is rarely the case in the indirect system, where voting rights are exercised by a supervision 3

4 council (Conseil de Surveillance-CS) which is in charge of managing the FCPEs and which votes the stocks on behalf of the employee stockholders. The CS are composed by one half of representatives of the employee stockholders, and by half of representatives of the management. However, the president of the CS has to be chosen between the representatives of the employee stockholders. The sources of employee ownership The employees account in the PEE may receive different sorts of contributions: some are sporadic while others are regular. There are four main regular sources of employee ownership. First, PEEs may allow employees to making regular contributions with a preferential tax treatment. Second, many large multinationals implement some cash profitsharing scheme (intéressement). Tax benefits may be secured if the employee decides to invest this bonus in the PEE. In this case, he/she can choose to invest the bonus in one of the available funds. Third, the employees must invest in the PEE the bonus received from the deferred profit sharing scheme (participation), which is compulsory in companies with more than 50 employees. This latter bonus is a profit share calculated according to a mandatory preset formula. Fourth, the company usually contributes in cash or in stock to the employees payments to the PEE. There are two main sporadic sources of EO: privatizations and employee stock offerings. In privatizations with shares sold on the stock market, at least 10% of the shares must be offered firstly to the company s employees with a discount of 20% maximum. However, these shares cannot be sold before a period of 2 years. Similarly to what happened in the United- Kingdom, most cases of EO in the French large multinationals came about as a result of privatization. The cases of direct and indirect ownership presented above apply to the case of privatization. Above the specific case of privatization, another important source of employee ownership concern the cases where companies propose their employees to purchase some shares of their employer at preferential conditions. They are usually called stock purchase offerings. Such offerings are done within the PEE framework and can concern direct or indirect ownership. The employees benefit from a discount purchasing price of about 20% usually and from a contribution of the employer in cash or in shares. The recurrence of such offers differs according to the companies: some of them make such offers every year while other prefer to consider them as being exceptional. To conclude we can say that France is certainly the country where policy-makers have the most tried to develop financial participation. Because of the tax incentives and the possibility to invest profit sharing bonuses in stock at preferential conditions explain certainly in part the development of employee 4

5 ownership. However this management practice concerns mainly large companies for several reasons. First, larger companies are more likely to have a traded share capital and hence are more readily able to use share schemes of whatever type (Pendleton, Poutsma, van Ommeren, & Brewster, 2001, p.51). Second, the large costs of implementing an EO plan may discourage smaller companies. Finally, as suggested previously, EO in France has been largely catalysed by the privatization of the formerly state-owned large companies in the years (Saint Gobain, Société Générale ), (Elf, Renault ), (France Télécom, EADS ) and 2005 with the privatization of Electricité de France. The large majority of the French large multinationals have therefore some broad-based EO scheme. Concerning the percentage of capital owned by employees the situations are very heterogeneous but it is usually quite small. Some companies like Total have large market capitalizations which means that it is difficult for employees to own a relevant percentage of the overall stock. However, in July 2005, employees owned 16% of Air France, 9.3% of Bouygues, 7% of Saint-Gobain and 7.25 of Société Générale. While such percentages can seem to be very low, it is important to note that the ownership of these companies is much atomized. As a result, employee shareholders as a whole may well represent one of the main shareholders. EMPLOYEE SHARE OWNERSHIP AND EMPLOYEE WORK ATTITUDES: THEORY AND EMPIRICAL EVIDENCE The social psychological literature on the attitudinal effects of employee ownership has largely suffered for a lack of theoretical foundations. In her seminal article of 1987, Klein presents three alternative, but not mutually exclusive, models of the psychological effects of employee ownership (Klein, 1987, p.320). These three models of satisfaction have become widely accepted as well-grounded approaches for distinguishing the ways EO may affect attitudes. The Intrinsic Satisfaction Model suggests that ownership itself is the critical variable in explaining the psychological impact of EO. According to the Instrumental Satisfaction Model, EO has some attitudinal effects if it enhances the employees rights to information and participation in decision making. Finally, the Extrinsic Satisfaction Model suggests that EO has positive attitudinal effects if it is financially rewarding to employees (Klein, 1987, pp ). In about thirty years of empirical research the three models of Klein have been tested in several ways with different ways of conceiving the mere ownership of stock (comparisons between employee owners and non owners working in the same 5

6 company, individual or collective levels of stock ownership ), the financial value of stock ownership (stock return, size of the company s contribution, financial value of individual ownership ) and the rights to information and participation in decision-making (perceived participation, actual voting rights ). Overall, the majority of existing evidence suggests that EO may have positive attitudinal effects, while some studies found no effects or negative effects (Kaarsemaker, 2006, p.44). One of the striking characteristics of the EO sociopsychological empirical literature is a lack of theoretical foundations (Pierce, Rubenfeld, & Morgan, 1991, p.122). Most empirical papers do merely evoke the Klein s models as the theoretical foundations of the undertaken study. Among the exceptions, Gamble et al. (2002, pp.10-11) has explained the attitudinal effects of employee ownership by agency theory. In this paper, we propose a new theoretical framework based on two axes: the first is based on theory about the determinants of motivation, satisfaction and affective organizational commitment, while the second draws on the Klein s models but goes beyond. Theoretical foundations. Employee satisfaction, motivation and affective organizational commitment are certainly the most researched outcomes in the employee ownership literature as well as in the HRM literature. We first propose to analyze the determinants of these three work attitudes to determine the extent to which employee ownership has the potential of affecting them. Concerning satisfaction and motivation, they are generally explained by expectancy theory, needs theory and justice theory. Building on the valence/expectations theory (Lawler III, 1971; Vroom, 1964), we suggests that EO may motivate employees if the following conditions are met: (1) the employee must believe that if he/she makes efforts, his/her performance would increase (expectation 1), (2) the employee must believe that his/her own performance impacts positively and significantly on the company s performance (expectation 2), (3) the employee must believe that the company s performance impacts positively and significantly on the stock value (instrumentality), and (4) the financial value of stock must represent something important for the employee (valence). We propose also to use justice theories (Greenberg, 1987, 1990) to explain the effects of employee ownership of work satisfaction. We argue that large multinationals tend on average to make considerable profits because they can benefit from the global growth. At the same time, the salaries tend to stagnate because of the global competition. This situation is likely to develop a feeling of injustice in the employees. Yet, we suggest that by making employees 6

7 participating in the distribution of dividends and in the growth of stock price, employee ownership has certainly the power of limiting such feelings of injustice. Finally, drawing on Meyer & Herscovitch (2001, p.316) we consider that employee ownership has the potential of enhancing affective commitment by associating employees to different courses of actions. Financial participation and participation in decision making can represent certainly ways by which employee ownership may involve employees in a course of action related to the company. As a second axis, we propose to use theories explaining the attitudinal effects of each element of the construct of employee ownership, namely (1) share ownership per se, (2) the financial value of share ownership and (3) the rights to information and decision-making associated to stock ownership. The attitudinal effects of equity possessions can first be explained by the theory of psychological ownership (Pierce, Kostova, & Dirks, 2001, 2003; Van Dyne & Pierce, 2004; Vandewalle, Van Dyne, & Kostova, 1995) as well as a psychological bias called mere ownership effect, which suggests that people tend to overestimate the objects associated with themselves i.e. the objects they personally own (Beggan, 1992; Hoorens, Nuttin, Herman, & Pavakanun, 1990; Nuttin, 1987). The attitudinal effects of the financial value of employee ownership can be explained by research on pay systems, which documents the importance of financial rewards on job satisfaction and motivation (Lawler III, 1971). Finally, the theoretical foundation of the instrumental model can be found in the participation literature and particularly in the assumption shared by some of the most prominent theorists in organizational psychology that participation in decisionmaking has a favorable impact on employee satisfaction and motivation (J. R. French, Israel, & As, 1960, p.5; Miller & Monge, 1986, p.730; Mitchell, 1973, pp ; White & Ruh, 1973, p.506) as well as on organizational commitment (Styskal, 1980, p.927; Tannenbaum, 1962, p.244). Tests of the intrinsic model. Few empirical studies could support the intrinsic model. Researchers have typically adopted one of the following five strategies (1) comparison of employees attitudes over time, either at various points after share ownership implementation or before and after schemes introduction, (2) comparison of the attitudes of employee owners and non-owners within the same company, (3) comparison of employees attitudes of employee-owned versus conventionally-owned firms, (4) comparison of the attitudes of employees working in companies with different percentages of stock employee-owned and (5) examination of the 7

8 relation between employee attitudes and the number of shares owned by the employee. Concerning the first strategy, the studies by Tucker, Nock and Toscano (1989, p.38) and Keef (1998, pp.79-80) could not find any attitudinal difference after the implementation of an ESOP. The study of Long (1982, pp.208) showed no differences and even a negative attitudinal effect after employee ownership commenced. Concerning the second strategy, Long found mixed results. The study concerned a trucking firm purchased by its employees six months before the study. He found that employee ownership improved organizational commitment for employee stockholders (Long, 1978a, p.39) but not satisfaction and motivation (Long, 1978b, p.758). Finally none of the studies by Buchko, French & Rosenstein, Hammer & Stern and Keef could corroborate the model since they did not found any significant relationship between the status of shareholder and work attitudes in companies converted to employee ownership (Buchko, 1992a, p.74; L. J. French & Rosenstein, 1984, p.866; Hammer & Stern, 1980, p.89; Keef, 1994, p.98). The study of Ros compared companies with and without employee ownership. The author used data from a 90% employee-owned ESOP manufacturing firm and six similar private firms, to investigate the effects of employee ownership on effort, shirking and horizontal monitoring. No significant differences were found in the dependent variables: the model was therefore not corroborated (Ros, 2001, p.111). The study testing the effect of the percentage of the capital owned by employees and their work attitudes yielded some mixed results. Long compared the work attitudes of employees of companies with different percentages of capital owned by the employees. The results showed that the more the percentage of capital owned by the employees the higher the levels of motivation and commitment (Long, 1980, pp.733,735). A similar test was undertaken by Klein and colleagues but on a larger sample of companies. However, no significant relationship was found between the percentage of capital owned by employees and their work attitudes (Klein, 1987, p.325; Rosen, Klein, & Young, 1986, p.110). Finally, the results of the study of Pendleton were mixed. In fact, a positive relationship was found between the percentage of capital owned by employees and their perceived efforts but no significant relationship was found with psychological ownership and organizational commitment (Pendleton, 2001, pp ). The last approach has been to test the impact of the individual level of stock ownership on attitudes. The studies of Hammer & Stern and Long have not found any positive relationship between the number of shares owners by the employees and their work attitudes (Hammer & Stern, 1980, p.87; Long, 1982, p.208). The results of the study of Pendleton were 8

9 mixed. The author found a positive relationship between individual ownership and the perception of working hard as well as psychological ownership but no relationship with organizational commitment (Pendleton et al., 2001, pp ). Overall, empirical evidence support weakly the intrinsic model. However, the results of existing studies are difficult to integrate and interpret because of it is hard to isolate the effect of ownership itself and because of the different methodologies and strategies used to test the model. Tests of the extrinsic model. Several financial variables have been used in the literature to test the extrinsic model. Klein has studied such elements as the size of the annual company contribution to the ESOP and the market performance of company stock. The model was partially corroborated since the authors found a positive relationship between the company s contribution and two out of three work values (organizational commitment and ESOP satisfaction but not turnover intention), but no effect of the stock returns and employee attitudes (Klein, 1987, p.326). Buchko has measured the financial value of the individual employee s ESOP account through a formula which took into account such variables as the employee s ESOP investment, the employee s salary, the percentage of salary that the employee designated to be invested in the plan. Overall, the author found a positive relationship between the financial value of the individual shareholding and such work attitudes as ESOP satisfaction, job satisfaction, organizational commitment, and a negative effect on turnover intention (Buchko, 1992a, p.72; 1992b, p.725; 1993, p.649). In the study of Gamble and colleagues, the extrinsic variable was a measurement scale of ESOP financial satisfaction. Strong positive relationship were found between this variable and work attitudes (Gamble et al., 2002, p.20). Three studies did not validate the extrinsic model. French a Rosenstein and Culpepper and Colleagues found no significant relationships between measures of the individual perception of the financial value of the shareholdings and work attitudes (Culpepper, Gamble, & Blubaugh, 2004, p.162; L. J. French & Rosenstein, 1984, p.866). Finally, Pendleton did not find any effect on the actual financial value of the individual shareholding and attitudes (Pendleton, 2001, pp ). Overall, the tests of the extrinsic model yielded also inconsistent results and are also difficult to interpret because of the use of different indicators of extrinsic variables. It seems however that the financial value of employee ownership tends to have a positive effect on work satisfaction but not on organizational commitment. Tests of the instrumental model. 9

10 According to the instrumental model, employee ownership may have some attitudinal effects if it enhances the employees rights to information and participation in decision making. This model is therefore based on the premise that ownership is viewed in terms of desire for, and expectations of, greater control (Trewhitt, 2000, p.439). Accordingly, the model could be tested in three complementary ways. First, authors could investigate whether employees expect to get some rights to information and participation when they become stockholders, second whether employee ownership actually gives some rights to information and participation, and finally, to what extent such rights impact positively on employee attitudes. Concerning the first test of the model, empirical evidence seems to refute the idea that employee ownership develops some expectations in terms of information and control. French & Rosenstein, found no relationship between the status of stockholder and the desire for influence (L. J. French & Rosenstein, 1984, p.867). Hammer & Stern (1980) in their study of a company purchased by its employees suggested that legal ownership, or the actual status change, was not associated with psychological or felt ownership. Management was still seen as the de facto owners of the company ( ) (p.96). In his study of three firms, Long (1980, p.859) found that the conversion to employee ownership, did not increase the employees desire for influence. Finally, Sockell (1985) and Trewhitt (2000) have studied the gap between perceived and desired participation in decision making for employee shareholders. The results of both studies refuted the instrumental model since they found no relationship between employee ownership and the influence gap (Sockell, 1985, p.134; Trewhitt, 2000, p.449). The second tested issue concerned to what extent employee ownership leads to more actual or at least perceived influence in decision making. Empirical evidence is overall quite mixed. In a series of studies, Long found himself some contrasting evidence. In his study of a trucking firm purchased by its employees, Long (1978a), found first that the conversion to employee ownership resulted in the adoption of a more participative management (p.40). In a subsequent study, the author used four different measures of perceived influence in three longitudinal surveys before/after the implementation of an employee ownership plan. The results refuted the instrumental model since the perception of participation did not change with employee ownership (Long, 1979, p.616; 1981, p.859). Finally, similar results where found by Tucker and colleagues (Tucker et al., 1989, p.37). We could find only limited empirical evidence supporting the idea that employee ownership leads to more influence. In a last longitudinal study, Long found some support to the model. 10

11 He could show that the perception of participation in decision of organizational level as a consequence of employee ownership (Long, 1982, p.203). However, this result applied more on the short term than on the long term (Long, 1982, p.208). Finally, in his comparison of traditional and employee-owned companies Ros found that in the latter, the perception of participation was higher (Ros, 2001, pp.99,133). The last way by which authors have tested the instrumental model has been by investigating the effect of participation on work attitudes. In this latter case, empirical evidence is largely consistent in supporting the instrumental model. Long has compared the relative effects of employee ownership and participation of some dependent attitudinal variables. He found that combined, employee ownership and participation contributed significantly to explained variance in all five dependent variables (Long, 1978b, p.761). In a subsequent study, the author could also show a positive effect of perceived participation on organizational commitment et work satisfaction (Long, 1982, pp.203, 207). Klein and her colleagues have used three different measures of participation. Overall, they found a positive effect of the instrumental variables of work attitudes (Klein, 1987, p.326; Rosen et al., 1986, p.126). The same kinds of results were found by other authors applying similar methodologies i.e. analyzing the relationship between perceived participation and such work attitudes as organizational commitment, ESOP satisfaction or work satisfaction. (Buchko, 1992a, p.73; 1992b, p.723; Culpepper et al., 2004, p.162; Gamble et al., 2002, p.20; Pendleton et al., 1998, p ). Three main conclusions can be derived from the empirical tests of the instrumental model. First, employee ownership does not seem to give rise to expectations in terms of participation in decision making. Second, stock ownership does not give always the employees some new rights in terms of participation in decision making. Third, when employee ownership does provide some rights to participating in decision-making, employee work attitudes are enhanced. Overall, these results suggest that employee ownership can have some positive attitudinal effects if the company as well as the employees see such a management practice as a tool to empower the workforce. In fact, some authors have suggested that the extent to which employee ownership increases perceived and actual employee s participation in decision making will depend on the reason why the company established its employee share scheme (Klein & Hall, 1988, p.636; Pierce et al., 1991, p.131; Rosen et al., 1986, p.63) : the more employee-focused, the more perceived and actual employees participation. Building on this argument, it has been suggested that the extent to which EO can increase perceived and actual employee participation in decision making will 11

12 depend on the management s philosophical commitment to the concept of employee ownership i.e. the extent to which management sees EO as a part of the company s overall culture, human relations policy and/or commitment to employees (Rosen et al., 1986, p.64). Empirical evidence supports this argument (see Gamble et al., 2002; Klein, 1987; Rosen et al., 1986). According to Hammer & Stern (Hammer & Stern, 1980, p.80), when actual sharing of control is desired, changes in decision making processes are needed to avoid frustrated expectations on the part of new worker owners. Also, according to Pierce and his colleagues, the attitudinal effects of employee ownership depend on the congruence between perceived and expected rights from ownership and on the meaning attributed by employees to stock ownership (Pierce et al., 1991, pp ). Finally, Trewhitt (2000, p.439) suggests that the claim that employees seek greater involvement when their company is employeeowned, is based on the premise that ownership is viewed in terms of desire for, and expectations of, greater control. Thus we propose that the employee philosophical commitment to the concept of employee ownership is a key variable in explaining the attitudinal effects of employee ownership. We define such a concept as the the extent to which the employees see EO as a management practice related to the company s overall culture, human relations policy and/or commitment to employees, rather than as a fiscal and financial tool. The structural model The goal of this research is to test the Klein s three models in the context of the large multinationals. As suggested by Buchko (1993, p.638), structural equation modelling is appropriate for testing the relationships hypothesized in previous research because the purpose of such modelling is to identify the direction and magnitude of effects of a series of determining variables on a dependent variable. This type of data analysis was also chosen for its well known advantages over other statistical techniques (B. M. Byrne, 2001, p.3; J. F. Hair Jr., Black, Babin, Anderson, & Tatham, 2006, p.706) as well as because it allows performing confirmatory and exploratory analysis simultaneously (Cheung, Leung, & Au, 2006, p.526). The structural model tested in this study investigates the relationships between intrinsic, extrinsic and instrumental variables on four attitudinal variables namely work motivation, job satisfaction, affective organizational commitment and turnover intention. Ownership preferences were also integrated to the model because of its importance for companies. 12

13 METHOD Materials A self-administered web survey was created containing 45 items hypothesized to measure 7 cultural subdimensions and two cultural dimensions, 68 items measuring scales related to employee stock ownership and employee attitudes as well as personal and demographic information such as age, gender, education level, and two measures of occupation (hierarchical level and job function). The items measuring culture values are part of a broader study and will not be analyzed in the present article. 5-point Likert-type rating scales were used and items were randomized by sub-groups to avoid response bias. Procedure and Participants Participants for this study were employees of four French Multinationals. Participation in the research was anonymous and voluntary. Response rate was of about 25%. It usually took about 25 minutes to complete the survey. Data were collected in June and July A total of questionnaires were collected. The majority of respondents were French, aged 40 or above, the education levels was quite heterogeneous, the levels of qualification were high on average, and the representation by functions was quite balanced. Missing data were imputed by maximum likelihood estimation, such as implemented by the EM algorithm in the SPSS Missing Values option (SPSS, 1997, p.7). Measures Measures of perceptions of employee ownership-related rights Perception of individual shareholding. Three measures were used to assess the employees perceptions of their individual stockholding thereby providing tests of the intrinsic model. The first variable was a dummy aimed at distinguishing employee shareholders from nonshareholders. The second variable represented the number of shares of the employer owned individually by employees (OWN1) assessed with on a 5-point scales that ranged from less than 10 to over 500. Finally, we measured the subjective individual shareholding on a 5- point scale that ranged from very few to a lot of shares (OWN2). 13

14 Financial value of the individual shareholding. Two extrinsic measures were used each containing only one item. The first was a static measure since it assessed the actual perceived monetary value of the shareholding (from 1= less than 100 to 5= over ) (VAL1), while the second was a dynamic measure since it assessed the perceived variation of the stock price (from 1= dropped dramatically to 5= increased significantly) (VAL2). Instrumental variables. Three instrumental variables were used in this study. The first was a measure of the employee ownership philosophy within the company. The variable was conceived as a second order latent variable comprising a scale of management commitment and a scale of employee commitment (PHILO). Both variables were assessed by 6-item scales 1 developed by the researcher and answered by employees. Examples of items are employee share ownership is an important element of my company s corporate culture. (employee philosophical commitment) or the company has implemented an employee ownership plan to increase employees interest in the company s success (management philosophical commitment). The second instrumental variable is the perceived participation in decision making as a consequence of employee ownership, while the third variable measured the quality of the information received as a consequence of employee ownership. Each scale was composed of six items 2 developed by the researcher. The scale utilized 5-point Likert-type response format where 1 represented strong agreement with the statement and 5 represented strong disagreement with the statement. Examples of items are Employee shareownership does not give the employees any right in the decision-making of the company. (perceived participation) or I don t understand anything about the company s employee stock ownership plan. (perceived quality of information). Measures of employee attitude variables Affective organizational commitment. Affective commitment is defined as the employee s emotional attachment to, identification with, and involvement in the organization (Meyer & Allen, 1991, p.67). The 6-item form of the Meyer and colleagues scale was used (Meyer, Allen, & Smith, 1993, p.544). 1 Only 4 items for each scale were finally retained after analysis of validity and reliability. 2 Again, only 5items were finally retained. 14

15 Job satisfaction. We used the 4-item scale used by Currivan (1999, p.518) to measure job satisfaction, defined as a pleasurable or positive emotional state resulting from the appraisal of one s present and past job experiences. (Locke, 1976). Work Motivation. We used the 5-item scale developed by Roussel (1996, p.246) to assed work motivation defined by the author as the worker willingness to produce effort in his work realized through actual effort displayed at work. Turnover Intention. The 3-item scale from Pendleton et al. (1998, p.109) was used to measure turnover intention. Ownership Preferences. A 6-item scale developed by the researcher was used to measure the employees tendency to invest in their employer s shares. An example of item is I will definitely participate in the next employee share offering plan. The scale utilized 5-point Likert-type response format where 1 represented strong agreement with the statement and 5 represented strong disagreement with the statement. Data Analysis Validity and reliability of the measurement instruments. The scale development method used in this study is based on the paradigm for measure development provided by Churchill (1979) as well as on some more recent works on scale development such as Dawis (1987), Hinkin (1995) and De Vellis (2003). Items were mainly generated from semi-directed interviews with employee-shareholders of French multinationals. The item pools were then submitted to two researchers specialized in employee ownership as well as to the executive director of one of the main international institutions related to employee ownership. The reviewers were asked to evaluate each item for their relevance as measures of the corresponding constructs as well as their clarity and conciseness. The reviewers were also asked to suggest further items. Principal axis factoring was used to test whether the selected items actually had the hypothesized factor structure (J.F. Hair Jr., Anderson, Tatham, & Black, 1998, p.371). We factor analyzed items simultaneously by groups in order to test discriminant validity at item level: items with high loadings on more than one factor were dropped. The items representing the four work attitudes were factor-analyzed together as well as the items measuring philosophical commitment, perceived participation and the quality of information. Convergent validity was ensured by dropping items failing to load in excess of.40 on any 15

16 factor. Coefficient alpha was used to assess construct reliability and a level of.7 and higher was considered as acceptable (Nunnally & Bernstein, 1994, pp ). The validation phase ended with a confirmatory factor analysis using AMOS 4 (Arbuckle, 1994). We used three main fit indexes to assess the extent to which the proposed factorial structure fitted the empirical data. These were the Comparative Fit Index (CFI), the Tucker Lewis Index (TLI) and the Root Mean Square Error of Approximation (RMSEA). The first two indexes are considered to indicate good fit when they exceed.9, while the latter is considered to indicate good fit when its value does not exceed.5 or maximum.7 (J. F. Hair Jr. et al., 2006, p.759,763). RESULTS Correlation Matrix Means, standard deviations and intercorrelations between the variables are shown in Table 2. Note that alpha coefficients are generally acceptable (>.7). However, the measures of employee philosophical commitment and turnover intention were poorly reliable. Table 1 also shows that fit indices for the latent variables in this study give evidence of good validity overall. It can be seen in Table 2 that the two intrinsic and the two extrinsic variables are weakly correlated with the four dependant attitudinal variables. However, the four instrumental independent variables are significantly correlated with the four work attitudes, with the correlations with affective commitment being the most high. These first results yet suggest that the instrumental variables are the most important in explaining the attitudinal effects of employee ownership. They also show that extrinsic variables seem to have a weak effect. Latent Means Invariance Measurement equivalence One of the ways by which it was possible to test the intrinsic model was to check for differences in work attitudes between employee shareholders and non-shareholders working in the same company. This test was possible for the respondents of one of the companies in our sample which was one of the main French banks. The available sample of respondents comprised 827 employee shareholders and 100 non-shareholders. Tests of latent means 16

17 invariance for motivation, satisfaction, affective commitment and turnover intention were performed using the procedure described in details by Byrne for AMOS 4 (B. M. Byrne, 2001, p ). As a first step, we tested measurement equivalence of the four scales between the two groups. TABLE 1 Overall fit indices for confirmatory factor analyses Measurement Models χ 2 DL CFI TLI RMSEA Perceived Participation Employee and management philosophical commitment toward EO Ownership preferences Quality of information Work attitudes In order to perform comparisons of latent scores or relationships between variables for two or more groups, it is important to ascertain that the measurement instruments operate in an equivalent way across groups, i.e. that they measure the same thing in the same way. Otherwise, differences between groups in mean levels or in the pattern of correlation of the measures are potentially artifactual and may be substantively misleading (Mullen, 1995, p.574; Raju, Byrne, & Laffitte, 2002, p.517; Reise, Widaman, & Pugh, 1993, p.552). Before testing for latent means differences in attitudes between the two groups, we assessed measurement equivalence of the four factors namely affective commitment, work motivation, job satisfaction and turnover intention. Although a variety of techniques have been used to assess various aspects of measurement equivalence (cf. Van de Vijver & Leung, 1997, pp ), there is general agreement that multigroup confirmatory factor analysis represents the most powerful and versatile approach (Steenkamp & Baumgartner, 1998, p.78). Following Steenkamp & Baumgartner (1998, p.81) we will consider that valid comparisons are possible if configural equivalence, as well as metric and scalar equivalence for at least two items per construct are established. Configural invariance is established when the pattern of fixed and free factor loadings are similar between groups (Vandenberg, 2002, p.144). Metric equivalence concerns the relationship between the latent variable and its indicators; it is tested by constraining the items factor loadings to be invariant across groups. Finally, scalar invariance concerns the consistency of the differences between latent means and observed means across groups and is tested by imposing an equality constraint on items intercepts (Steenkamp & Baumgartner, 1998, p.80).we used AMOS 4 (Arbuckle, 1994) to assess the validity of the hypothesized factor structures as well as measurement equivalence between employee-shareholders and non-shareholders. For the latter, we adopted the multisample analysis feature of AMOS 4. As a prerequisite to testing for factorial equivalence, it is 17

18 customary to assess for each group, the measurement model which best represents the observed data. 18

19 TABLE 2 : Descriptive statistics, correlations and alpha coefficients. Variables M SD NI α No of shares **.29**.56**.10*.11** ** Quantity of Shares ** 1.15**.41**.07.16**.13**.10*.02.17** ** 3. Compensation **.15** 1.31**.14**.27**.21**.12**.14**.28**.14**.14**.07* 4. Shares value **.41**.31** 1.17**.10** ** Shares value *.07.14**.17** 1.18**.08*.08*.12**.36** * 6. Employee *.16*.27**.10**.18** 1.60**.37**.26**.40**.20**.23**.36** philo.commitment 7. Management *.21**.04.08*.60** 1.43**.24**.39**.26**.23**.38** philo.commitment 8. Participation *.12**.02.08*.37**.43** 1.25**.24**.10**.20**.29** 9. Information **.04.12**.26**.24**.25** 1.31**.14**.20**.22** 10. Ownership *.17*.28**.19*.36**.40**.39**.24**.31** 1.19**.13**.26** Preferences 11. Satisfaction ** **.26**.10**.14**.19** 1.48**.48** 12. Motivation ** **.23**.20**.20**.13**.48** 1.49** 13. Commitment *.07*.07.09*.36**.38**.29**.22**.26**.48**.49** Turnover Intention ** ** -.17** -.20** -.14** -.14** -.12** -.34** -.47** -.51 * p<.05; **p<.01. NI, number of items; for each variable, the composite score is the mean response to items. The statistics concern 899 individuals French employee shareholders. 19

20 Afterwards, when testing for measurement invariance, equality constraints are imposed on particular parameters, and thus, data for all groups must be analyzed simultaneously to obtain efficient estimates (B.M. Byrne, 2004, p.274). The results of the tests of measurement equivalence are summarized in Table 3. For each of the models, a 4-factor confirmatory factor analytic model was specified. The loading of one indicator of each factor was fixed at 1.0 for identification purposes. It is often advised to choose the most reliable or representative item as the marker (Kline, 2006, p.44; Thompson, 2004, p.119). In this study, we used as markers the items with the highest factor loadings as they appeared in the exploratory analysis. Models 1 and 2 show that the 4-factor model fits relatively well in both groups with CFI values of.92 and.93 for both groups and RMSEA values of.06 and.07 consistent with the generally recommended cutoff criterions (J. F. Hair Jr. et al., 2006, p.753). In model 3, the 4-factor model is tested for both groups simultaneously, the RMSEA value of.05 and the (CFI) and (TLI) values of.92 and.90 respectively, although the two latter are somewhat less than the generally recommended cutoff criterion, still represent a relatively good fit across the two groups and give evidence of configural equivalence. Also, the χ 2 value of 334.5, with 142 degrees of freedom, provides the baseline value against which all subsequent tests for invariance will be compared. Having established structural equivalence, the next logical test was the one of metric equivalence, i.e. a test of equivalent factor loadings. Model 4 in Table 3 shows the fit indices of the model where factor loadings are constrained equals between groups. However, of primary importance is the comparison of its χ 2 value of (150 df) with that for the baseline model (χ 2 (142) = 334.5). In fact, when models are nested, this difference in χ 2 values (in large samples) is distributed as χ 2, with degrees of freedom equal to the difference in degrees of freedom (Van de Vijver & Leung, 1997, p.100). This comparison yielded a χ 2 difference value of with 10 df, which is not significant at the.01 probability level. Metric invariance is therefore established. In Model 5, scalar invariance is tested by adding the constraint of equality of item intercepts. As shown in table 3, the χ 2 difference value of with 42 df is significant at the.01 probability level. Therefore one or more item intercepts are not equivalent. Finally an inspection of the modification indexes (MI), suggested that the lack of scalar invariance was due to the item Qui3. Relaxing this equality constraint yielded to χ 2 difference value of 62.9 with 40 df which is not significant at the.01 probability level. 20

21 As a conclusion, full metric and partial scalar equivalence being established, we could be confident in comparing latent scores differences for motivation, satisfaction, commitment and turnover intention between employee-shareholders and non shareholders. TABLE 3 : Fit Indices for Measurement Equivalence between Shareholders and non-shareholders Model χ 2 DL CFI TLI AGFI SRMR RMSEA DL χ 2 CFI Mono-Group Analyses Shareholders Model 1 220, Non-shareholders Model Multigroup Analyses Model 3, Configural. Invariance Model 4, Metric Invariance , n.s. Model 5, Scalar Invariance p<0.01 Model 6, Partial Scalar Invariance (Intercept Qui3 not restricted) 382, n.s. Substantial Analyses Model Assessment. In testing for latent means invariance with AMOS 4, all the parameters of the measurement model except those found to be non-invariant across groups are constrained to be equal. In this case, this applied to the intercept of item Qui3. In order to allow the model to be identified it is necessary to pick one group and fix the mean to 0. This is then considered as the control group to which the second group will be compared (Arbuckle, 2005, p.386). The group of employee non-shareholders was chosen as the control group because we wanted to know whether the fact of being a shareholder made a difference. TABLE 4 : Fit indices, work attitudes, latent means invariance. Model χ 2 DL χ 2 /DL RMSEA The goodness-of-fit statistics resulting from the analysis are reported in Table 4 3. The RMSEA value of.047 and the normed χ 2 value of 2.13 suggest that the model fits very well to the data. Note that generally χ 2 /DL ratios on the order of 3:1 or less are associated with better- 3 Such fit indices as AGFI and SRMR are not reported here because they are not calculated by AMOS 4 when a model includes means and intercepts as explicit model parameters (B. M. Byrne, 2001, p.241). Also in these cases, Amos uses a different baseline model than most other SEM programs use in computing fit measures. As a consequence, the CFI and NFI indices are biased upward and tend to take always larger values (Arbuckle 2006, personal communication). 21