Employee Ownership: Management Entrenchment vs. Reward Management
24 Pages Posted: 13 Mar 2011 Last revised: 21 May 2011
Date Written: April 1, 2011
Abstract
Previous literature shows that employee ownership can be used as a reward management tool or as entrenchment mechanism. This paper develop a model suggesting that employee ownership policy reveals management quality. Good managers would use employee ownership as a reward management tool whereas bad managers would implement it for entrenchment motives. We bring about three main conclusions: (i) Bad managers use employee ownership as an entrenchment mechanism. (ii) This latter phenomenon increases the cost of employee ownership for good managers. (iii) Avoiding these problems necessitates that employee ownership policy should not be discretionary.
Keywords: Employee ownership, corporate governance, management entrenchment, reward
JEL Classification: G11, G32, G34, J33
Suggested Citation: Suggested Citation
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