The influence of financial participation and

int. J. of Human Rrsimrce

Manaeeitient

15:3 May 2004 587-616

| 3 Routledge

The influence of financial participation and participation in decision-making on employee job attitudes

Ismail Bakan, Yuliani Suseno, Asiiiy Pinnington and Artliur Money Abstract This study investigates the direct and indirect effects of financial participation (FP) and purlicipiitioii in decision-making (PDM) on cmpktycf job aiiiludes. The central premise is Ihat bolh linancJa] parlieipalion and participaiion in decision-making have etTeels on job altitudes, such as integration, involvement and commitment, perceived pay equity, performance-reward contingencies, sati.slaction and motivalion. After reviewing the theoretical and cinpiricai literature and testing two theoretical frameworks, developed hy Long (1978a) and l-lorkt)wski (1989). a new model was constructed to consider a combined effects ot both VP and PDM, herein referred Io as employee pan ici pat ion (KP). The underpinning oi the model is based on the assumption thai hoth (a) the combination of linancial participation and participation in decision-making ('employee participation"), and (h) participaiion in decision-making produce favourable etTeels on employee job attitude.s. The test of the new model showed that employee partieipation does not produee more favourable effects on employee job attitudes, than does participation in decisionmaking on its own. The data were gathered from a questionnaire study administered in a large British retail organization that operates two types of ownership schemes - profitsharing and SAYE schemes. Keywords Financial participation (profit sharing and SAYE schemes); participation in decision-making; employee participation: joh attitudes. Introduction Financial participation (FP) has long been claimed to have a substantial effect on employee job atliludes. and therefore on organizational performance (e.g. Holyoake, 1906; James et al, 1926; Lloyd, 1898; Williams, 1913). It is argued thaf. when employees are owners, they ean think and act like owners {Pfeffer. I99S). becoming more responsihle and accountable for organizational outcomes. FP. sucli as prolii-sharing and save-as-you-earn (SAYE) schemes, has grown continuously over the last two decades ofthe twentieth century in Britain (IDS Study, 1998; Smith. 1993; Richardson and Nejad, 1986). Dunn et ol. (1991) noted that these .schemes have been one of the more widely used institutional innovations in human resources.

Assistant Prolessor Dr Ismail Bakan {address for coni'spoiidoHey. KalirjuianEiiaras Sutcu Imam University. The Faculty of Economics and Administrative Sciences. The Departinenl of Business Administration. 46060 Kahranianmaras. Turkey (tel: + 344 223 76 66 cxt. 396; tax: + 344 221 14 29; e-mail: ismailbakan^'ksu.edu.tr). Yuliiini Suseiio. UQ Business School. The University of Queensland, Brisbane. Queensland 4072, Austriiiia. f>r Ashly Pinnington. UQ Business School, The University of Queensland. Brisbane. Queensland 4072. Australia. Professor Arthur Money, Henley Management College, Greenlands, Henley-on-Thames, Oxfordshire RG9 3AU. UK. The Iniernational Journal of Human Resource Management ISSN 0958-5192 print/ISSN t466-4399 ontinc © 2004 Taylor & Francis Ltd hitp://www.land f.co.uk/joumal.s tX)t: 10.1

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The existing literature on FP. sometimes known as employee share ownership, provides mixed evidence of altitLidinal change. One reason for the mixed resuhs has been the underdeveloped slate ol conceptual models to guide research and analysis (Pierce ('/ ai, 1991). The majority of the repoited empirical studies on FP rarely offer a welldeveloped theoretical explication of the process through which employee ownership affects employee job attitudes. The approach in our research was to construct a more robust theoretical model which addresses the three perspectives of ownership effects and satisfaction identified by Klein (1987): intrinsic, instrumental, and extrinsic perspectives, We empirically lesied and extended Long's (1978a) model as a representative of Ihe insliumcnial theory, and FInrkowski's (1989) model as a representative of ihe instrumental and extrinsic theories. We developed and evaluated a model of the attitudinal elTecis of bolh FP and participation In decision-making (PDM), with the aim of increasing our understanding of the relative contribution of their direct and indirect effects on Joh altitudes. This study is underpinned hy the fact that hoth FP and PDM have independent effects on job attitudes (dependent variables), and the combination of these two would produce a stronger effect on the dependent variables. The specific objective of t)ur research is to develop a more robust model, taking into account the attitudinal effects of FP and PDM by testing Long's (1978a) and Flurkowski's (1989) models, and to test whether the combination of FPand PDM. hereafter referred lo in this paper as cmpkiyce pariicipation (EP), produces more favourable effects on employee job attitudes than does PDM on its own. A new model was constructed alter the replication studies of Long's and Florkowski's models. It was tested in I997-X using attitudinal data from a questionnaire study of I.OOOemployees issued in October 1997 in a large British retail organization. It is based on the assumption that bolh (a) employee participation (KP) and (b) participation in decision-making (PDM), produce favourable effects on several employee Job attitudes, most notably: integration, involvement, commitment, perceived pay equity, perceived performance-reward contingencies, perceived influence on decision-making, support for profit sharing (PS), support for SAYE. satisfaction with PS and .SAYE. general satisfaction, co-operative behaviours, group work norms, motivation, general interest in the Job. pride in job accomplishment and interest in Innovation. For the purpose of this paper, we shall focus on ihe effects of FP, PDM and EP on Just nine of the job attitudes listed above: commitment, involvement, integration, perceived pay equity, perceived performance-reward contingencies, perceived influence on decision-making, support for PS, support for SAYE and satisfaction with PS/SAYE. FP and PDM directly affect job attitudes such as Integration, involvement and commitment, through tbe effects of share ownership and participation in the sharing of tbe prolits of the organization. Tbey may also bave indirect effects un Jab attitudes by favourably infiuencing other Job attitudes, such as perceived pay equity and pertbrmance-reward contingencies. Employee participation (EP). a combination of FP and PDM, may also be expected to enhance the perceptions of pay equity and perfnrmance-reward contingencies, and lo influence decision-making. These perceptions will, in turn, enhance organizational commitment. Aparl from tbese effects, it is expected that these perceptions will also indirectly lead to organizational commitment through favourably Influencing the support for profit sharing (PS) and for save-as-ynu-earn (SAYE) schemes and tbe satisfaction with PS/SAYE schemes. Hypotheses to investigate these effects will be tested. We structure the paper as follows. First, the existing literature and researcb on FP (PS and SAYE scbemes) will be reviewed to enable a better undeislanding of the relationship between the schemes and employee Job attitudes. Second, the critical role of PDM in job

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iUliiiides is examined. Third, we elaborate the effects of employee perceptions on job attitudes. Fourth, the relative effects of FP and participation in decision-making will be analysed, by replicating Long"s {1978a) and Flnrkowski"s (1989) Miulics. Fifth, a new research model will he explained In the light of the lindingsul our tesi i)t Long's (1978a) and Florkowski's (1989) models, and in the context of the existing literature. Next, we shall elaborate the research method and the measurement of the variables employed in the study. Finally, the results of our te.st of the new model in a large company will be reported and discussed. The results show that, when the two forms of participation - financial and decision-making - iire combined, they do not necessarily produce a stronger eftect on employee job attitudes than does PDM on its own. Perspectives of financial participation After reviewing existing research on employee ownership, Klein identified three distinct perspectives of the psychological effects of employee ownership. Each of these three models is based on the assumption that "if employees are satisfied with the employee ownership plan, they will feel committed to the company and motivated to keep working there* (1987: 320). The models suggest that different employee ownership conditions are related to high employee satisfaction, characterized by stock ownership, high nrgani/alional commilment and low turnover intentions. The first perspective is the 'intrinsic' model, which suggests thai employee ownership alone increases employee commitment to. and satisfaction with, the company. The benefits of ownership are derived directly from the fact of ownership ralher than from factors in the ownership scheme itself or in the organizational context. Researchers working from this perspective have examined the relationship between employee attitudes and the number of shares owned by the employee (French and Rosenstein. 1984: Hammer and Stern. 1980), compared the altitudes of employee-owners and non-owners (Long, 1978a), used pre- and post-owtiership surveys (Tueker et uL. 1989), and compared employee-owned and conventionally-owned firms (Greenberg. 1980: Rayton andSeaton. 1999: Rhodes and .Steers. 1981: Russell 5 l a I '

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related lo pay equity (b = ,07. p < .05), performance-reward contingencies {b = ,05. /' < .!{)). inlluence on decision-making (h = .08. p < ,05), supporting hypothesis 7a. This result is also supported by path analysis (see Table 5): although EP does not have a direct elTect on commilmenl. il does have an indirect effect. In terms of analysing PDM, the analysis indicated that organizational commitment is related to pay equity [b = .07. P < .05) and inlluence on decision-making (b = .06. p < ,05). but was not significantly related to perceived performance-reward contingencies. Thus, hypothesis 7b is not strongly supported. Il was hypothesized iH8) that 'support for PS", "support for SAYE'. and 'satisfaction with PS/SAYE schemes' would be affected by the employees' perceived equity, performance-re ward contingencies and influence on decision-making. As shown in Tables 5. 6 and 7, consistent with the model, the study found thai 'support for PS" was uflectcd by performance-re ward contingencies (r = .35. p < .001; b = .28, p < .001). pay equity (r = .19, /; < .001; 6 = .10, p < JO), and perceived influence on decisionmaking (r - .17, p < .001; b = .10, p < .10). 'Support for SAYE' was affected by pcrlornumce-reward contingencies (r = .35, p < ,001; b = .33, p < .(M)l) and perceived influence on decision-making ( r = . 1 5 , /J < .01; b = .09. y5