Abstract for: Dynamics of Shared Capitalism Policies

Shared capitalism is a set of compensation practices (e.g., employee ownership, stock options, and profit sharing) through which worker pay, or wealth, depends on the performance of the firm or work group. Empirical studies on whether employee ownership improves firm performance, while predominately positive, offer mixed results. This paper addresses the question: under what conditions do shared capitalism policies improve firm performance? A system dynamics model of high performance work systems estimated using the NBER Shared Capitalism dataset and calibrated to a clean technology startup company is presented. The model posits explicit causal mechanisms to explain how various shared capitalism policies and human resource practices influence employee behaviors that drive business processes, and how those business processes interact with market conditions to generate firm performance. Simulation analyses demonstrate that employee ownership and profit sharing create and mediate the strength of multiple reinforcing feedbacks linking firm performance and employee behavior. The more wealth is shared through broad-based employee ownership, the more wealth is created, given the appropriate conditions. Policy analysis suggests how mutual gains for owners and employees can be attained through a balance of salary, stock grants and other shared capitalism policies.