Russians Learn Ins, Outs of Employee Ownership : * Economics: ESOPs are catching on slowly in the Soviet Union, but there is still resistance from both government and workers, visiting Soviets say.
When Vladimir Patrikeyev and his managers moved to convert their Moscow-based electrical engineering company from state control to employee ownership, they hoped to motivate workers and generate goodwill for their efforts.
Their plan was to allow workers to buy stock in the firm. The company, MOEM, also introduced a compensation program that rewarded employees based on their contributions to the company.
Patrikeyev, 66, figured the changes would provide an incentive for workers to increase productivity and pay more attention to quality. But MOEM employees--and government agencies--strongly opposed the plan.
“Ministries and city governments who control parts of the enterprise were not ready to give up their authority,” Patrikeyev, chief executive of MOEM, said. “Local city council officials attempted to block our efforts by not signing the documents allowing us to transform MOEM to an (employee stock-ownership plan) ESOP.”
Patrikeyev was one of four Soviet executives attending a Thursday seminar at UC Irvine on motivating employees through company ownership. The conference, which ends today, was attended by more than 80 executives from companies with ESOPs. It was sponsored by the Foundation for Enterprise Development, a La Jolla-based nonprofit group that works with companies involved with ESOP programs.
Employee-owned companies--already thriving in the United States--are catching on slowly in the Soviet Union. One reason is that workers often fear the loss of their jobs in a system that stresses rewards for individual performance, said Valery Varvarov, 51, a board member of BUTEC, an organization that represents more than 460 businesses, mostly in the Russian Republic, that have adopted ESOPs.
Moreover, Soviet workers have grown more distrustful of management as the Soviet economy has plunged into disarray, he said.
“There was either indifference to the shift (to employee ownership) or a vehement resistance, mostly from less-educated people who don’t trust management,” Varvarov said.
But Patrikeyev said the initial reluctance among MOEM’s employees has been overcome. Today, most of MOEM’s 3,000 employees own a share of the company, making it one of the first successful ESOPs in the Soviet Union.
Since Soviet President Mikhail S. Gorbachev allowed state-owned companies to privatize two years ago, some Soviet managers have been turning to ESOPs, which they liken to collective ownership, said Joseph R. Blasi, a Rutgers University management professor and co-author of “The New Owners,” a new book on ESOP programs.
Ronald Bernstein, the foundation’s associate director, said the Soviet Union is fertile ground for ESOPs because the government still owns most industries. ESOPs would enable the government to sell state enterprises “at a fair price to the employees and allow a lengthy pay-back period.”
The idea is that Soviet companies would improve their profits under employee ownership, allowing the worker-owners to pay back the government, he said. “It will not be easy, but it could be done.”
Blasi said many Soviet workers are worried that their companies will be purchased at cut-rate prices by former Communist Party officials, government agencies and foreign investors. ESOPs, which give employees a voice in management, are one way to prevent these “undesirable occurrences,” he said.
Blasi said Soviet officials have told him that they are considering a number of ways to transfer ownership of state companies to workers. One way would be to issue stock vouchers to employees that could be used to buy shares of newly privatized companies, he said.
“I expect that many workers will purchase stock in a company they know best, which is the company they work in,” Blasi said.
Employee Ownership Nearly 11 million U.S. workers, most at closely held corporations, own stock in their companies. More than 1,500 of the 10,000 participating companies are more than 50% owned by their employees; the level of employee ownership at the others averages 12%. Forms of Employee Ownership:
Employee Stock Ownership Plan
How It Works: Loans are used to buy stock on behalf of employees; company repays loan, receives tax incentives
Money Invested: $50 billion in U.S. stocks under such plans. Example: Polaroid Corp.
Employee benefit plans e.g., 401(k) plans, profit-sharing trusts
How It Works: Company buys its own stock with assets in these plans
Money Invested: $48 billion in U.S. stocks under such plans. Example: Grumman Corp.
Employee stock purchases
How It Works: Employees buy stock through regular paycheck deductions. Money Invested: An estimated $35 billion in U.S. stocks under such plans. Example: Science Applications International Corp.
Universal stock options
How It Works: A company grants stock options to all its employees.
Money Invested: Less than $1 billion in U.S. stocks under such plans. Example: Pepsico Inc.
Source: Joseph Blasi and Douglas Kruse, The New Owners, 1991
