University of Southern California

Center for Effective Organizations

News

Company Stock and Company Loyalty

Research from Theresa Welbourne

Read a working paper on this study.

A recent study conducted by Theresa Welbourne (CEO Research Professor) took a look at employee stock purchase plans at a high-tech start-up company. Start-ups, especially in the high-technology sector, have often offered stock purchase plans to their employees in lieu of higher salaries or bonuses. Stock plans may also be seen as a way to keep employee interests concomitant with those of the company and as a retention tool. Welbourne wanted to examine what drives the decision to purchase company stock, and whether workers buy stock because they are loyal to their company.

Welbourne collected survey data from a high-tech firm. Among other things, the data measured several kinds of work-related identity, including organizational and career identity. Organizational identity encompasses a strong acceptance of the goals and values of an organization and is high when employees feel a sense of loyalty to the company. Career identity is when employees identify highly with their profession/career and do things to advance their careers.

The study looked at the high-tech firm as it initially went public and then one quarter after the IPO. Welbourne theorized that if employees bought stock at these times, they would also score higher on measures of organizational identity, since buying stock at this time, when there would be very little market data available to the employees, suggests a strong belief in and loyalty to their company.

The results bore this hypothesis out. Employees who showed a higher level of organizational identity did buy more stock. Welbourne notes that the employee's feeling of loyalty to the company may not translate into a wise financial choice, since the risk of buying any newly public company's stock may be very high.

Welbourne writes that rewarding organizational identity may not be in the best interest of employers. Certainly in the past, many companies had a "loyalty contract" with their workers - as long as an employee was loyal to the organization, the organization would be loyal to the worker. That relationship has changed in recent decades. Organizations are often unable or unwilling to put in place a lifetime loyalty contract with their workers, and they now seek people who identify with their careers, instead of being someone loyal to the organization. Thus, stock purchase plans may in fact be an ineffective incentive for the kinds of workers organizations actually want to attract and retain.

Read a working paper on this study.

Your cart is empty

Sponsor Login

Login

Need help logging in?