Why employees say yes (or no) to owning shares in their company
New research examines what influences employee participation in share plans over time, and what organisations miss when they focus only on who joins
Companies implement employee share schemes to align employees' interests with those of the organisations they work for. These plans allow workers to buy shares in their organisation through salary contributions, often at a discount or with a matching incentive, and often pre-tax. Other arrangements may involve share options, savings plans, or the ability to invest in company stock through a retirement plan.
These plans can offer significant benefits to employees, organisations, and society. Employees can receive a financial return, dividends, voting rights, or a greater sense of connection to the organisation, while companies participate to support productivity, innovation, engagement, and retention. At a broader level, share scheme participation can spread wealth, reducing inequality and the divide between capital and labour in capitalist economies.
Yet participation rates can be low, even when plans offer apparently attractive financial incentives.
In previous research on employee share schemes, participation has been identified as a binary choice – to either be a shareholder or not. However, a recent review by Professor Michelle Brown from the University of Melbourne, Professor Andrew Pendleton from UNSW Business School, and Dr Simon Tarantelli, a Melbourne-based independent researcher, challenges this approach.
In The employee share ownership participation decision: An integrative review and agenda for future research, recently published in Human Resource Management Review, the researchers examined 48 publications from fields including human resource management, organisational behaviour, industrial relations, finance, economics, and law to develop a broader framework for understanding why employees participate in employee share schemes.
Employee ownership is not a single decision
When invited to join a share ownership scheme, employees must decide not only whether to participate but also how much to invest and what their desired total shareholding is. “These decisions matter because they influence the magnitude of the financial link between company performance and employee compensation,” Prof. Pendleton said.
The researchers identified four main factors that influence employees’ decisions: their financial circumstances, levels of investment knowledge, attitudes towards risk, and attitudes to their employer. “If any of these are not aligned, employees may be reluctant to participate,” Prof. Pendleton said. “They might be able to afford to contribute but may be put off by lack of understanding of shares or their unwillingness to take on risk.”
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Some may see invitations to participate in share schemes as a straightforward way to build wealth, while others may be reluctant to put their savings into the same company that provides their income. Employees may also be concerned about tax, the future share price, or what would happen if they left the organisation.
The review argues that these influences need to be considered together, rather than examined in isolation. “Employers intending to offer a share scheme should consider affordability and employees’ financial understanding and preferences, and design their plan accordingly,” Prof. Pendleton said.
Participation can change over time
Much of what is known about employee share scheme outcomes has been based on whether employees are participating in a particular plan at the time data is collected, rather than on the duration or history of their participation, the researchers explained.
Most employee share schemes are ongoing forms of compensation, with employees receiving multiple opportunities to participate during their employment. Over time, some employees move in and out of the plans; some join when invited; and others never participate.
“The employee’s past experience of share scheme participation can influence what happens next: an employee who has benefited from an earlier investment may be more likely to participate again, while someone who has experienced losses, or who has found the plan difficult to understand or manage, may be more likely to stop,” Prof. Brown said.
"Employers intending to offer a share scheme should consider affordability and employees’ financial understanding and preferences, and design their plan accordingly"
ANDREW PENDLETON
A related study of Australian employee share schemes, conducted by Profs. Brown and Pendleton, titled Decisions to Enrol in Employee Stock Ownership Plans: When Experiences Become a Habit, found that employees take the longest to decide whether to participate when they are first invited to join a plan. “It is important to get the first-time experience right, and for employers to devote time and effort to ensuring new employees fully understand the plan,” Prof. Brown said.
She also highlighted the role of habitual decision-making: “Those who have joined share schemes in the past tend to join plans in the future. Conversely, those who decline scheme invitations tend to continue to do so.”
This temporal dimension is one of the areas the researchers identify as requiring more attention. The focus on participation at a single point in time in previous research can obscure how different patterns of participation develop over an employee’s time with the organisation, from an initial decision to join through to ongoing involvement in the plan, according to Dr Tarantelli.
“It can also obscure the reasons why employees choose to leave a share scheme,” he said. “An employee who stops contributing may, for example, have changed jobs, faced new financial pressures, become more cautious about risk, or simply decided that they already hold enough company shares.”
The organisation shapes the decision, too
Employee participation is not determined by individual preferences alone. The review also points to the importance of organisational context: the way a company designs, explains, and promotes its share scheme may affect how employees understand the opportunity and whether they trust it.
Workplace culture matters as well, as employees may be influenced by whether managers and colleagues support the plan and whether the organisation is transparent about the risks involved.
That creates a challenge for employers. The aim of an employee share scheme may be to strengthen employee engagement and align workers with the company’s goals, but employees are also being asked to take on additional financial exposure to the organisation that employs them.
“While employers need to be transparent about potential risks (while also avoiding giving financial advice), they could devote greater attention to the financial education of their employees,” Dr Tarantelli said. “Communicating relevant information throughout the life of the share plan, rather than just at the invitation stage, could also contribute to employees’ understanding and acceptance of the plan.”
The researchers suggest that future studies should pay greater attention to these organisational factors, as well as to the timing and sequence of participation decisions over time.
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They also call for methodological innovation. Rather than relying only on a snapshot of who is participating at a particular moment, future research could track employees’ decisions over time and examine how individual experiences interact with changes in the organisation and its share price.
That could provide a more realistic picture of employee ownership: not as a simple choice between participation and nonparticipation, but as an ongoing process shaped by financial considerations, personal circumstances, workplace culture, and experience.
The practical implication for organisations is that offering a share plan may be only the beginning. Participation is more likely when employees have a favourable attitude toward their organisation, understand what they are being asked to do, feel confident in the value of the opportunity, and have a positive experience upon joining.
Five recommendations for industry professionals
- HR and remuneration leaders can review whether the design of employee share scheme plans reflects employees’ financial circumstances, understanding, and risk preferences.
- Share plan administrators and employee communications teams can explain the plan at invitation and throughout its life.
- Financial educators can help employees understand shares and plan features while keeping education separate from personal financial advice.
- Tax and payroll specialists can check statements about tax, salary contributions and leaving the organisation.
- Research and analytics teams can track when employees join, continue or leave, and examine how experience affects later decisions.