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In the Workplace: A small warning about employee stock ownership

Did you watch the stock market – and the value of your savings – plummet in the recent market dive? Yep, you know the emotional toll exacted by following your investments, even if the drop is short term.

Wall Street’s wild ride slapped us with a reminder about the value of diversification. It’s never smart to concentrate retirement savings in one place. And that means not getting too heavily invested in our employer’s stock, no matter how high-flying its shares or how good the company match.

The August annual meeting of the Academy of Management included a paper presentation with another kind of investment warning: When employees voluntarily purchase their company’s shares, they can develop “higher expectations that organizations may find difficult to fill.” That’s a new wrinkle.

Researchers at Purdue University, Texas A&M University, the University of Pittsburgh and Seoul National University found, like previous studies, that workers are more invested in their company’s performance and profitability when they have skin in the game. Employee owners typically feel more personal responsibility to perform well, are more likely to stay with the company and are likely to recommend their companies as good places to work.

But authors of the new study, based on a survey of employees and managers at a commercial real estate firm, found particular problems can occur with 401(k) investments chosen by employees that are distinct from shares granted by the company.

Those voluntary investments in their employer’s stock fostered higher expectations, including “beliefs that the employer is obligated to provide an array of costly benefits and practices, including promotions, training and career development, job security and high salaries.”

Furthermore, “employees investing a higher percentage in company stock may perceive a violation of the psychological contract, which may reduce employee trust, job satisfaction, organizational citizenship behavior and intent to stay.”

Basically, the study concluded, employees who choose to invest their own money are more likely to take time off, to take more time off than might be expected and to take it when they felt like it rather than when it was best for the company.

The report suggests that employers offering stock to their employees could head off some “psychological contract” problems by preaching the value of diversification and designing 401(k)s with alternate investment choices. That might reduce the chance that employees feel like “I gave you my money. You owe me.”

Employee satisfaction and loyalty depend, of course, on factors far more complex than stock investment. Every management study reminds us that honest communication is the bedrock of employee engagement. It’s not just about money.

Diane Stafford is a columnist for The Kansas City Star: 816-234-4359, stafford@kcstar.com, @KCStarStafford

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