While profit-sharing plans are intended to encourage employees to “think like owners,”
a stock ownership plan actually makes employees part owners of the organization.
Like profit sharing, employee ownership is intended as a way to encourage employees
to focus on the success of the organization as a whole. The drawbacks of stock ownership
as a form of incentive pay are similar to those of profit sharing. Specifically, it
may not have a strong effect on individuals’ motivation. Employees may not see a
strong link between their actions and the company’s stock price, especially in larger
organizations. The link between pay and performance is even harder to appreciate
because the financial benefits mostly come when the stock is sold—typically when
the employee leaves the organization