_________________________________________________________________
E M P L O Y E E B E N E F I T S , C O M P E N S A T I O N
& P E N S I O N L A W
Vol. 6, No. 19: October 11, 2005
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Publisher: Employment, Labor, Compensation & Pension Law Journals
a division of
Social Science Electronic Publishing, Inc. (SSEP)
and Social Science Research Network (SSRN)
Editor: PAMELA PERUN
Urban Institute
Mailto:pamela@planetnow.com
Copyright: SSEP, Inc. 2005. All rights reserved.
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Topic of This Issue:
Human Capital and Employee Ownership
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T A B L E of C O N T E N T S
_________________________________________________________________
NEW and FORTHCOMING ARTICLES
"Employee Share Ownership: Safeguarding Investments in Human
Capital"
British Journal of Industrial Relations, Vol. 43, No. 3,
pp. 469-488, September 2005
ANDREW M. ROBINSON
University of Leeds - Faculty of Business
HAO ZHANG
University of Leeds - Faculty of Business
"Thinking and Doing - The Regulation Of Workers' Human Capital in
the United States"
Socio-Economic Review, Vol. 3, September 2005
KATHERINE VAN WEZEL STONE
University of California, Los Angeles
School of Law
WORKING PAPERS
"Employee Sentiment and Stock Option Compensation"
NITTAI BERGMAN
Massachusetts Institute of Technology (MIT)
Sloan School of Management
DIRK C. JENTER
Massachusetts Institute of Technology (MIT)
Sloan School of Management
National Bureau of Economic Research (NBER)
"Varieties of Employee Ownership: The Unintended Consequences of
Corporate Law and Labor Law"
ADITI BAGCHI
Independent
"Employee Share Ownership Schemes in Australia: A Survey of Key
Issues and Themes"
RICHARD MITCHELL
Melbourne Law School, University of Melbourne
JARROD LENNE
Melbourne Law School, University of Melbourne
IAN MALCOLM RAMSAY
Melbourne Law School, University of Melbourne
"On the 'Essential Condition' of Intellectual Capital: Labour!"
DAVID O'DONNELL
Intellectual Capital Research Institute of Ireland
MAIREAD TRACEY
University of Limerick
LARS BO HENRIKSEN
Aalborg University - Department of Development &
Planning
PETER CLEARY
National University of Ireland - University College
Cork
NICK BONTIS
McMaster University
Michael G. DeGroote School of Business
TOM KENNEDY
University of Limerick
PHILIP O'REGAN
University of Limerick
"Working Alone: What Ever Happened to the Idea of Organizations
as Communities"
JEFFREY PFEFFER
Stanford University
Graduate School of Business
S S R N I N F O R M A T I O N
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EDITORIAL POLICIES
To provide the broadest coverage of research in Employee
Benefits, Compensation & Pension Law we do not referee working
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scholarly discourse.
N E W and F O R T H C O M I N G Articles
_________________________________________________________________
"Employee Share Ownership: Safeguarding Investments in Human
Capital"
British Journal of Industrial Relations, Vol. 43, No. 3,
pp. 469-488, September 2005
BY: ANDREW M. ROBINSON
University of Leeds - Faculty of Business
HAO ZHANG
University of Leeds - Faculty of Business
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=788991
Contact: ANDREW M. ROBINSON
Email: Mailto:A.M.Robinson@lubs.leeds.ac.uk
Postal: University of Leeds - Faculty of Business
Leeds LS2 9JT, UNITED KINGDOM
Phone: 0113-343-4907
Co-Auth: HAO ZHANG
Email: Mailto:H.Zhang@lubs.leeds.ac.uk
Postal: University of Leeds - Faculty of Business
Leeds LS2 9JT, UNITED KINGDOM
ABSTRACT:
Valuable investments in human capital, it has been argued, may
be at risk in much the same way as shareholder equity capital.
In this paper, we develop and test the hypothesis that employee
share ownership (ESO) may be used to encourage and safeguard
investments in human capital. Using the Workplace Employee
Relations Survey 1998, we examine the empirical link between the
likelihood of ESO and the presence of valuable human capital.
Adjusted for possible structural influences, empirical evidence
suggests considerable support for our hypothesis.
______________________________
"Thinking and Doing - The Regulation Of Workers' Human Capital in
the United States"
Socio-Economic Review, Vol. 3, September 2005
BY: KATHERINE VAN WEZEL STONE
University of California, Los Angeles
School of Law
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=717903
Paper ID: UCLA School of Law Research Paper No. 05-13
Contact: KATHERINE VAN WEZEL STONE
Email: Mailto:stone@law.ucla.edu
Postal: University of California, Los Angeles
School of Law
405 Hilgard Avenue
Box 951476
Los Angeles, CA 90095-1476 UNITED STATES
ABSTRACT:
The ownership of human capital has become a hotly contested
issue in the United States. Covenants not to compete are widely
used in the American workplace and the source of an enormous
volume of litigation. Trade secret disputes are also widespread.
The issues raised by these cases are not new, but they are
arising with increasing frequency and are posed in a new way.
The new focus on workers' human capital is a result of the fact
that, in the past two decades, the employment relationship has
changed from one in which workers' knowledge about production
was devalued to one in which it is highly prized. This change in
the nature of the employment relationship has many far-reaching
implications for many aspects of employment regulation, of which
the ownership of human capital is high on the list. This article
examines the current disputes and legal trends concerning the
issue of who owns the workers' human capital from an historical
perspective. It begins with a review of the regulation of
employee human capital in earlier employment systems and a
description of the new employment relationship. It then
discusses the current controversies and changing legal framework
governing the ownership of human capital to show that the law is
out of step with the changes in the nature of work. Part III
proposes an approach that is consistent with the implicit
promises and understandings that underlie the new employment
relationship.
______________________________
W O R K I N G P A P E R Abstracts
_________________________________________________________________
"Employee Sentiment and Stock Option Compensation"
BY: NITTAI BERGMAN
Massachusetts Institute of Technology (MIT)
Sloan School of Management
DIRK C. JENTER
Massachusetts Institute of Technology (MIT)
Sloan School of Management
National Bureau of Economic Research (NBER)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=741557
Paper ID: NBER Working Paper No. W11409
Date: June 2005
Contact: DIRK C. JENTER
Email: Mailto:djenter@mit.edu
Postal: Massachusetts Institute of Technology (MIT)
Sloan School of Management
50 Memorial Drive
Cambridge, MA 02142 UNITED STATES
Phone: 617-258-8947
Co-Auth: NITTAI BERGMAN
Email: Mailto:nbergman@mit.edu
Postal: Massachusetts Institute of Technology (MIT)
Sloan School of Management
50 Memorial Drive
Cambridge, MA 02142 UNITED STATES
ABSTRACT:
The use of equity-based compensation for employees in the lower
ranks of large organizations is a puzzle for standard economic
theory: undiversified employees should discount company equity
heavily, and any positive incentive effects should be diminished
by free rider problems. We analyze whether the popularity of
option compensation for rank and file employees may be driven by
employee optimism. We develop a model of optimal compensation
policy for a firm faced with employees with positive or negative
sentiment, and explicitly take into account that current and
potential employees are able to purchase equity in the firm
through the stock market. We show that employee optimism by
itself is insufficient to make equity compensation optimal for
the firm. Any behavioral explanation for equity compensation
based on employee optimism requires two ingredients: first,
employees need be over-optimistic about firm value, and second,
firms must be able to extract part of the implied rents even
though employees can purchase company equity in the market. Such
rent extraction becomes feasible if employees prefer the
non-traded compensation options offered by firms to the traded
equity offered by the market, or if the traded equity is
overvalued. We then provide empirical evidence confirming that
firms use broad-based option compensation when boundedly
rational employees are likely to be excessively optimistic about
company stock, and when employees are likely to have a strict
preference for options over stock.
JEL Classification: G3, J3
______________________________
"Varieties of Employee Ownership: The Unintended Consequences of
Corporate Law and Labor Law"
BY: ADITI BAGCHI
Independent
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=757564
Date: May 2005
Contact: ADITI BAGCHI
Email: Mailto:bagchiaditi@yahoo.com
Postal: Independent
No Address Available,
ABSTRACT:
Theories of employee ownership implicitly assume that its
essential features are the same in all countries. In fact,
employee ownership varies considerably across institutional
environments. In this paper, I compare its development in the
United States, Germany, and Sweden to show that the
institutional background - in particular, the existing bodies of
corporate and labor law - against which a program of employee
ownership arises determines its course. Background institutions
determine the cost of worker control over management, the cost
of collective decision-making, and the expected gains from
risk-bearing. Those consequences of corporate and labor law in
turn determine whether employee ownership legislation transfers,
or creates incentives for firms to transfer, a share of profits
to workers (residual income rights); or whether legislation
instead empowers workers to raise the present and/or deferred
price of labor in proportion to profitability (control). Workers
and their representative organizations push (or allow) only
those employee ownership programs that secure what is absent but
feasible in light of their existing range of tools. Even when
employee ownership is a viable program, employee ownership
legislation can only augment, not revise, the present
institutional resources of organized labor.
______________________________
"Employee Share Ownership Schemes in Australia: A Survey of Key
Issues and Themes"
BY: RICHARD MITCHELL
Melbourne Law School, University of Melbourne
JARROD LENNE
Melbourne Law School, University of Melbourne
IAN MALCOLM RAMSAY
Melbourne Law School, University of Melbourne
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=809944
Paper ID: U of Melbourne Legal Studies Research Paper No. 129;
Partnerships at Work Research Paper Series
Date: May 2005
Contact: RICHARD MITCHELL
Email: Mailto:r.mitchell@law.unimelb.edu.au
Postal: Melbourne Law School, University of Melbourne
Centre for Employment & Labour Relations Law
Victoria 3010, AUSTRALIA
Co-Auth: JARROD LENNE
Email: Mailto:jarrodlenne@netscape.net
Postal: Melbourne Law School, University of Melbourne
Victoria 3010, AUSTRALIA
Co-Auth: IAN MALCOLM RAMSAY
Email: Mailto:i.ramsay@unimelb.edu.au
Postal: Melbourne Law School, University of Melbourne
Centre for Corporate Law & Securities Regulation
Victoria 3010, AUSTRALIA
ABSTRACT:
Employee share ownership ('ESO') schemes have recently been the
subject of public policy interest in Australia. Employees owning
shares in the company for which they work potentially has a
number of ramifications, not least of which is the prospect that
these schemes might circumvent the problematic of employees as
'outsiders' in corporate governance.
This paper surveys key issues and themes surrounding ESO
schemes in Australia. It explores the varied policy rationales
for these schemes, noting both broad bipartisan support and a
generally limited conception of their fundamental purpose. The
paper also outlines the current state of empirical research on
their incidence and effects. It is suggested that available
information on ESO schemes is patchy and there is no clear
picture of Australian practices. In light of an overview of the
present regulation of ESO schemes, the paper concludes by
highlighting further research questions.
JEL Classification: K31, K22
______________________________
"On the 'Essential Condition' of Intellectual Capital: Labour!"
BY: DAVID O'DONNELL
Intellectual Capital Research Institute of Ireland
MAIREAD TRACEY
University of Limerick
LARS BO HENRIKSEN
Aalborg University - Department of Development &
Planning
PETER CLEARY
National University of Ireland - University College
Cork
NICK BONTIS
McMaster University
Michael G. DeGroote School of Business
TOM KENNEDY
University of Limerick
PHILIP O'REGAN
University of Limerick
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=808245
Date: July 2005
Contact: DAVID O'DONNELL
Email: Mailto:david.odonnell@ireland.com
Postal: Intellectual Capital Research Institute of Ireland
Limerick County, IRELAND
Co-Auth: MAIREAD TRACEY
Email: Mailto:mairead.tracey@ul.ie
Postal: University of Limerick
Limerick, IRELAND
Co-Auth: LARS BO HENRIKSEN
Email: Mailto:lbh@plan.auc.dk
Postal: Aalborg University - Department of Development & Planning
Fredrik Bajers Vej 7E
DK-9220 Aalborg, DENMARK
Co-Auth: PETER CLEARY
Email: Mailto:p.cleary@ucc.ie
Postal: National University of Ireland - University College Cork
Cork, IRELAND
Co-Auth: NICK BONTIS
Email: Mailto:nbontis@mcmaster.ca
Postal: McMaster University
Michael G. DeGroote School of Business
1280 Main Street West
Hamilton, L8S 4M4 Ontario CANADA
Co-Auth: TOM KENNEDY
Email: Mailto:tom.kennedy@ul.ie
Postal: University of Limerick
Limerick, IRELAND
Co-Auth: PHILIP O'REGAN
Email: Mailto:philip.oregan@ul.ie
Postal: University of Limerick
Limerick, IRELAND
ABSTRACT:
This paper explicitly raises the issue of the ownership rights
of labour to intellectual capital. Following Marx and Engels'
identification of the 'essential condition of capital' - this
paper begins an initial critical exploration of the essential
condition of intellectual capital, particularly the ownership
rights of labour. Adopting a critically modernist stance on
unitarist HR and OB discourse, and contextualised within a
background on the stock option phenomenon and recent accounting
regulation, the paper argues that the fundamental nature of the
capital-labour relation continues resiliently into the IC-labour
relation. There is strong evidence that broad-based ESOPs have
become institutionalised in certain firms and sectors - but the
future of such schemes is very uncertain post 2005 accounting
regulation. Overly unitarist HR/OB arguments are challenged here
with empirical evidence on capital's more latently strategic
purposes such as conserving cash, reducing reported accounting
expense in order to boost reported earnings, deferring taxes,
and attracting, retaining and exploiting key elements of labour.
Research supports the positive benefits of broad-based employee
stock ownership schemes; but further research on the benefits of
such schemes and the reasons why they are or are not implemented
is now required. From the perspective of labour, nothing appears
to have really changed (yet) in terms of the essential condition
of intellectual capital.
JEL Classification: A13, D23, D63, J33, M52, P16
______________________________
"Working Alone: What Ever Happened to the Idea of Organizations
as Communities"
BY: JEFFREY PFEFFER
Stanford University
Graduate School of Business
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=804544
Paper ID: Stanford GSB Research Paper No. 1906
Date: July 2005
Contact: JEFFREY PFEFFER
Email: Mailto:pfeffer_jeffrey@gsb.stanford.edu
Postal: Stanford University
Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015 UNITED STATES
Paper Requests:
For hard copies at Graduate School of Business, contact Harjeet
Heer. Mailto:heer_harjeet@gsb.stanford.edu. Postal: Graduate
School of Business, Stanford University, Stanford, CA
94305-5015.
ABSTRACT:
Even as employees are increasingly disengaged and distrustful of
their employers, organizations have moved to become less like
communities and adopt more arms-length and distant relationships
with their people. Organizations that are more communal have
arrangements for helping employees in need, offer more generous
employee benefits and assistance, eschew anti-nepotism policies,
have more company sponsored social events, are better at
resolving work-family issues, and foster long-term employment
relations. Although there are clearly disadvantages from
building a more inclusive relationship with the workforce, some
case evidence and theory suggests that there are profound
advantages from organizations becoming more communal. This
raises the interesting question of how to explain the trend in
observed practices.