Incentives, Ownership & Productivity

Regardless of all operations, strategy and management factors, staff productivity can make or break a business. Recruitment & training are thus fundamental to any CEO’s efforts to ensure or improve worker output. Many firms struggle with the aforementioned areas and many others wonder what more can be done. Employee ownership is complement to recruitment and training, which is gaining ground as performance incentive. Today, over a fifth of the US workforce participates in some type of employee ownership or holds company stock options but these models are far less widespread in emerging markets.

 

However, the model’s vast potential was highlighted recently through GroFin investee Taai Bricks. Taai Bricks is a brick manufacturer based in Gauteng, South Africa. In a country where low worker capacity is listed among top enterprises challenges, Taai Bricks has improved both the quantity and quality of workers and their output, with extensive training and incentives.  Nearly half of Taai Briack’s 173 staff are female and at entry, almost 70% of them would be consider low-skilled, with little venues for professional advancement. In addition to providing vocational and technical training, Taai Bricks endows workers with shares in the company, which increase with seniority and performance. Their unique performance incentive model has helped create a vibrant workforce with remarkably low staff turnover and consistent gains in output and revenue.
Taai Brick’s illustrates employee ownership’s potential to improve business competitiveness. Some studies suggest that employee ownership and similar plans improve company performance by reducing principal-agent conflict, in other words, the worker will do what is best for the company, when he/she also gains from the upside. The long-term appreciation of the employee’s stock theoretically cements longer-term allegiance and loyalty.

 

productivity 2But these performance gains have deeper roots than just profit sharing- after all, there’s a human side to human capital. Besides the financial incentive, employee engagement is likely what’s driving stronger performance. For example, at Taai Bricks, workers are encouraged to contribute their views and be involved in decision-making, making them feel more integrated and loyal. Likewise, they are able to assume increasing responsibility and chart their own progression. In some ways, Taai Bricks’s model resembles Google’s employee engagement approach, which provides high autonomy and growth opportunity as opposed to large equity stakes. Engagement is beyond financial terms, and refers to experiential factors, like the interaction with management, the workplace environment and opportunities for learning and growth.

 

Based on Taai Bricks and the ESOP research studies, it could benefit emerging market companies to explore employee ownership models. For emerging market SMEs, it could be particularly useful in terms of financing debt, creating tax benefits and quickly building up shareholder equity.

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