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E-MailNicolai Tangen is the Chief Executive Officer, Carine Smith Ihenacho is the Chief Governance and Compliance Officer, and Shilpi Nanda is a Policy Advisor at Norges Bank Investment Management. This post is based on their NBIM memorandum.
Our view
- Employee share ownership can create long-term value for companies, shareholders, employees and society.
- Plans work best when they are offered broadly across the workforce, transparent in design, and complementary to wages.
Our perspective as a long-term financial investor
As one of the world’s largest sovereign wealth funds, we seek the highest possible return for the Norwegian people within our investment management framework. Our long-term returns depend on sustainable value creation across our portfolio. How companies manage their workforce matters to this objective. Growing evidence shows that well-designed employee share ownership can create long-term value for companies, shareholders, employees and society.
These plans are found in our portfolio with notable regional differences. They are most prevalent in East Asia, particularly Japan and South Korea. Larger European companies are more likely to offer them, though employee participation is declining. In the United States, they are found in sectors such as retail and technology among listed companies, with growing momentum in private equity.
We have consistently supported well-designed employee share ownership plans. Since 2013, we have voted in favour of 98% of management proposals, typically voting against only when there is insufficient transparency. International governance standards recognize the value of employee ownership. Major institutional investors and proxy advisors express similar support in their voting guidelines, typically with conditions such as limits on dilution and vesting periods.
Why employee ownership matters
We observe that employee share ownership can create long-term value across three dimensions:
For companies and shareholders: When employees own shares, their incentives align with corporate goals and shareholder interests, which can improve financial performance. A global analysis of 102 studies across 56,984 companies found a positive relationship between employee ownership and company performance. Studies from the US, Europe, Japan, South Korea and China find evidence of productivity improvements. Research also shows higher profits, stronger sales growth, increased innovation and lower costs of capital. These benefits are strongest when employee ownership complements wages and is offered broadly across the workforce. However, benefits depend on company size, industry, and plan design. Higher-performing companies may be more likely to adopt these plans, and most research comes from developed markets.
For employees: Evidence shows that employee share ownership can help workers build wealth. Employees who own shares are more committed and engaged. A study of 190,000 employees across 39 countries found that participants were significantly less likely to voluntarily leave their companies. However, employee share ownership concentrates both employment and investment risk. If the company faces difficulties, employees may experience job loss and wealth decline simultaneously. Companies should consider this risk when designing these plans.
For society: Employee-owned firms tend to show greater resilience during economic downturns, with higher survival rates and better employment maintenance. This contributes to labour market stability and well-functioning markets. Employee ownership also broadens financial participation, with some US evidence indicating wealth-building benefits for underrepresented groups. This matters as new technologies like artificial intelligence risk concentrating value among a small group.
Based on this evidence and our experience as investors, effective employee share ownership plans share several characteristics:
Key principles for effective employee share ownership
Broad participation: Plans work best when offered broadly across the workforce, not limited to senior executives.
Appropriate governance: Boards should oversee employee ownership as part of human capital management.
Long-term focus: Plans should create long-term value and build an ownership culture where employees develop a deeper stake in the company’s success. Holding requirements should be reasonable and allow flexibility for departures, retirement, and diversification.
Complementary to pay: Employee ownership should complement wages and benefits, not replace them.
Employee education: Companies should provide clear information and training to help employees understand and participate in plans.
