The Relationship between Employee Attitudes and Organizational Performance: Evidence

from Cooperative Retail Stores

Honors Thesis
Hieu Luu
Colgate University
Thesis Advisor: Professor Takao Kato
May 2011
 Abstract

This paper is an examination of the relationship between employee attitudes and selected
measures of job performance (sales volume, turnover, and absenteeism). Using annual employee
survey data from Eroski, a cooperative retail business in Spain, I find evidence that employee
attitudes are positively related to sales volume. This relationship is, however, only present in
stores with a high level of employee ownership and employee involvement (called Coop stores).
In stores with lower level of employee ownership (called Gespa stores), no such evidence is
found. In both types of stores, I do not find evidence that employee attitudes are related to
turnover rate and absenteeism rate. These empirical findings fit well with previous literature on
job attitudes and producer cooperatives. I will also argue that the findings are consistent with
Coops superior institutional features over Gespas.

Keywords: Employee Attitudes, Job Satisfaction, Organizational Performance, Producer

Cooperatives
JEL Classification: J54, J28, L25

I am very grateful to Professor Jyoti Khanna, my classmates, and other professors in my seminar
presentations for their helpful comments. I want to thank Professor Takao Kato for providing me
with the Mondragon dataset, and especially for his valuable advice not only on this project but
on many other occasions during my college career.
I. Introduction

Can employees job attitudes determine the economic performance of their workplace?

This question, usually called the attitude-performance problem, has drawn extensive research

from all fields of behavioral sciences over the past 70 years. Due to its significance in business

management and human psychology, the answer to it has often been referred to as the Holy

Grail in organizational behavior research (Weiss & Cropanzano, 1996). Nonetheless, such

answer is yet to be found. Theories concerning job satisfaction are still weak; empirical studies

provide mixed results. The situation calls for further investigations.

This paper is an attempt to provide more insights and evidence into this attitude-

performance question. Using data from an employee attitude survey of a retail business in Spain,

I will determine whether employee attitudes could be associated with economic performance at

the organizational level. Organizational performance will be specifically measured by a set of

three variables: sales performance, turnover, and absenteeism. The main focus is on sales

performance; however, turnover and absenteeism are included in the analysis because a high rate

of either ones will increase the cost of labor for the firm, which consequently reduces

organizational efficiency. Traditionally most research on job satisfaction was conducted at the

individual worker level. My analysis here, however, will be performed at the organizational

level. For each retail store in the sample, an Employee Attitude Index (EAI) will be created to

capture the employee satisfaction climate of the store. Furthermore, particular attention will be

paid to the ownership scheme and the institutional framework of the workplace. I presume that

organizational structures and ownerships will affect how workers perceive and identify

themselves with their jobs. As a result, a worker could react differently to the same increase in

job satisfaction depending on whether he/she is an owner of the workplace. This hypothesis
motivates me to explore how the attitude-performance relationship is affected by the levels of

employee involvement and of employee ownership. In other words, is the attitude-performance

relationship more significant in workplaces where employees are also owners and are heavily

involved in the management?

The empirical data for this study is obtained from the Eroski retail chain, headquatered in

the Basque region of Spain. Eroski group is the third biggest retail business in Spain, with

employment reaching 50,587 in 2007. The company was founded in 1969 as a member

organization of the Mondragon Cooperatives (MCC); as such, its store units have traditionally

followed the cooperative model where all employees are also owners and have significant power

over the management. These traditional cooperative stores are commonly referred to as Coop

stores, and are located in Northern Spain. Beginning in 1997, in an effort to expand their market,

Eroski have opened up stores in other parts of Spain. Most of these newer stores follow an

organizational structure called Gespa - a hybrid between cooperative models and capitalist

models. In these Gespa stores, the level of employee ownership and involvement is considerably

less than in Coop stores. This heterogeneity of ownership and involvement will serve as a key

point in my identification of the attitude-performance relationship.

The attitude survey was conducted in two years, 2006 and 2008, in both Coop and Gespa

stores. Each employee was asked number of written questions regarding their satisfaction with

various aspects of their job; their responses were recorded anonymously. By matching a stores

survey data with its corresponding performance data in 2006 and 2008, I can assess the

relationship between the stores employee attitudes and different measures of economic

performance. The empirical analysis supports the following conclusion. Employee attitudes and

organizational performance are linearly related; however, this attitudes- performance relationship
is fundamentally different between Coop and Gespa stores. Out of the three specified

performance variables, sales volume and turnover rate are related to attitudes in Coop stores,

while absenteeism is related to attitudes in Gespa stores. The empirical findings suggest that the

level of employee ownership and involvement might affect how attitudes and performance are

associated. Qualitative evidence will be provided in later parts in order to interpret the empirical

findings. The rest of the paper will proceed as follow. Section II outlines important institutional

features of Coop and Gespa stores. Section III reviews relevant studies in the literature

concerning job satisfaction, economic performance, and employee ownership and involvement.

Section IV describes the data and method. Section V presents the econometric specification and

estimation results. Section VI concludes.

II. The Case Eroski Retail Stores

As aforementioned, our case Eroski is a large retail business in Nothern Spain and a

member organization of the greater Mondragon Cooperatives (MCC). Founded in the late 1950s,

Mondragon is now a highly successful cooperative consortium in Spain. 1 Mondragon is an

organization of over 250 cooperative subsidiary firms spanning four business areas: Finance,

Industrial Manufacturing, Distribution, and Research and Education, where Eroski is part of the

Distribution group. A democratic, labor-managed enterprise, Eroski is a distinctive case in many

ways. 2 Since cooperative firms are relatively rare (compared to conventional capitalists) and

generally not well-understood, this part will outline important features concerning the company

1
The economic success of Mondragon has attracted considerable interest from scholars and proponents of
cooperative organizations. For discussions of Mondragon and its success, please see for example: Johnson and
Whyte (1977), Bradley and Gleb (1982) and Whyte (1999).
2
The International Cooperative Alliance (ICA), to which many cooperative firms around the world belong, has
specified seven cooperative principles: Voluntary and Open Membership; Democratic Member Control; Member
Economic Participation; Autonomy and Independence; Education, Training and Information; Co-operation among
Cooperatives, and Concern for Community. Eroski stores, especially Coops, have been operating in close
accordance with these principles.
and its institutional framework in order to supplement the econometric interpretations in later

parts.

Eroski first began operation in 1969 as a single store; since then it has been on a steady

growth path. Nowadays it is the third largest retail chain in Spain in terms of retail floor space

and the largest single employer in the Mondragon group (employing about half of the total

Mondragon workforce). As of 2008, Eroski have a total of 2441 retail outlets; most of them are

located in Spain (2398 units), the remainder in France and Andorra. Under the common

CONSUM brand name, these retail outlets are divided into three subgroups: hypermarkets,

supermarkets, and specialized shops. Due to the availability of the survey data, this study will

focus exclusively on the hypermarket subgroup; analysis concerning supermarkets and

specialized stores is left for future research. In 2008, Eroski owns a total of 109 hypermarkets.

Usually located in the outskirt of the cities, Eroski hypermarkets are large department stores that

offer a very diverse range of products. Each hypermarket is divided into three sections: food,

clothing and domestic products. Most items in stock are on display to attract a wide range of

customers. Self-service is typical in most departments, except in some specialized food

departments where customers occasionally consult the expertise of sales clerks. The task for the

majority of employees consists of receiving and shelving goods, and maintaining the cleanliness

and the appearance of their departments.

Despite considerable economic success, Eroski did not seek to expand their market beyond

the Basque region until fairly recently in 1997. This delayed expansion is partly because the

company used to be highly committed to its traditional cooperative model, which emphasizes

employees democratic control and thus does not facilitate fast and massive size expansions

(Bakaikoa et al., 2004). In 1997, when faced with increasing competitions, Eroski decided to
open a number of new stores that do not necessarily follow traditional cooperative models.

Consequently, now Eroski stores have different organizational structures. Stores opened prior to

1997 are traditional cooperative units (Coop stores). Stores opened after 1997 sacrifice some of

the original cooperative spirit in favor of fast expansions. These newer stores either follow a

secondary form of cooperative structure (called Gespa) or simply adopt a pure capitalist structure

with no cooperative features involved. Within the hypermarket subgroup of Eroski, no newer

store follows the pure capitalist structure. For the purpose of this paper, we are only concerned

with hypermarkets, so only the distinction between Coop and Gespa is necessary and will be

discussed below.

One of the most fundamental differences between Coop and Gespa stores is their

ownership. Coop stores are solely owned by its workers. All Coop workers who have permanent

contract are expected to become cooperative members after a short probationary period (usually

less than six months) (Arando et. al. 2011). A key requirement for a prospective member is the

willingness to buy a substantial amount of stake in the store. After this capital commitment, the

probationary worker will effectively become a coop member and an owner of the store. In 2009,

this minimum initial stake for Coop membership is 6000 Euros, which amounts to about 30% of

the average annual remuneration in an Eroski store. 20% of this initial stake will be allocated to

the stores collective reserve, while the rest remains individually owned. Over time, this initial

stake will grow in size as profits made by Eroski are credited to individual members accounts.

These individual accounts also yield an annual interest rate, usually set above the market rate. On

the other hand, in Gespa stores, the initial capital requirement to become an owner is only as half

as that in Coops, or about 3000 Euros. As in Coops, this initial stake will also grow over time, as

store surpluses are distributed to the worker-owners accounts. However, since the first Gespa
was only opened in 1997, whereas Coop has existed since 1969, the average workers stake in

Gespa is substantially less than that of a Coop worker. Additionally, when Gespa stores were

acquired, existing workers are not obliged to become owners, so nowadays not all workers in

Gespa are owners.

Also, since Coop stores follow the cooperative principles more closely than Gespa stores,

worker-owners in Coops are allowed some exclusive non-pecuniary benefits compared to their

Gespa counterparts. First, Coop worker-owners are considered cooperative members of the wider

Mondragon Cooperatives, and as such, their rights extend beyond their stores. Any Mondragon

coop member can attend the Mondragon-wide Annual General Meeting (AGM), be elected to the

Mondragon Governing Council (i.e. the Board of Directors) and the Mondragon Social Council

(a body representing the interests of the workers). Being eligible for the Governing Council

guarantees executive powers and opportunities to shape Mondragon-wide policies and strategies,

a benefit that is exclusive to Coop members. Gespa membership, widely regarded as second-

class compared to Coop membership, only entitles election to the Social Council; Gespa

worker-members are ineligible for the AGM and the Governing Council. Besides, the emphasis

on equality and solidarity of Coop stores is also reflected in a very compressed wage differences.

The usual ratio of top-bottom wages rarely exceeds 5:1, well below industry standards (Arando

et. al. 2011). Compared to Gespa and other conventional retail stores, top managers in Coops

usually receive a lower wage (as much as 30% by some estimates), but non managerial workers

receive a premium of at least 20%.

Despite being subject to the same set of human resource (HR) policies, Coop and Gespa

still differ in terms of how well HR policies help create a favorable environment for personal

development of workers. In all Eroski stores, opportunity for personal development is identified
as a key part of the companys competitive strategy, and is mentioned explicitly in the

companys written documents (Arando et. al. 2011). As such, managers and workers are

encouraged to improve their working skills through trainings and discussions. An intimate and

cordial relationship between labor and management is also encouraged, and is realized through

(weekly) meetings of workers and managers. However, statistics and interviews with store

managers (conducted by professor Kato and his colleagues) reveal that the extent to which HR

policies are implemented is considerable larger in Coop than in Gespa. For instance, during the

time span of the data, Coop workers meet with each other and with their managers on average

nearly 15 times more than Gespa workers. Many Gespa stores do not hold labor meetings for

several months consecutively. 3 Thus, when compared to Gespa, Coop stores represent a more

favorable working environment for workers.

A peculiar benefit that both Coop and Gespa stores provide for their members is the

absolute job security. After becoming Coop or Gespa members, workers enjoy what effectively

is a 100% job security. Over the 40 year history of Eroski stores, no Coop or Gespa members

have ever been laid off. In some unusual cases of store closures, workers have always been

offered alternatives employment nearby. No Coop stores have ever been closed. Workers who

seek job security and democratic work environments therefore have strong incentives to become

Coop/Gespa members.

Coop stores distinctive institutional features make them a closer model of High

Performance Work Systems (HPWS) than Gespa stores. A premise in the HPWS literature is that

workers have exclusive valuable knowledge on the production process that is not shared by the

managers. However, managers, by eliciting ideas and contributions from the workers, could still

3
On average, Coop workers and Gespa workers spend 0.28% and 0.02% respectively, of their working hours on
labor meetings. A two-group t-test shows that this difference is highly significant (p-value is essentially zero).
make use of production-specific knowledge and improve the companys performance (Jones et.

al. 2010). For that to be achieved, a HPWS needs to focus on three dimensions of workers

working lives: incentives (to work and contribute), opportunities (to express new ideas), and

training/recruitment selection (to improve the skill set) (Appelbaum et. al. 2000). In our case

Eroski, Coop workers have higher stakes in the stores; it is believable they have more incentives

to work. They have significantly more opportunities for decision-making, both at the Mondragon

wide level (by eligible for the AGM, the Social Council and the Governing Council) and at the

store level (Coop workers and managers meet and exchange ideas more frequently than Gespa

people). Following the literature on HPWS, one can expect that Coop would be more efficient

and productive than Gespa; indeed recent econometric studies seem to confirm that (Arando et.

al. 2011).

Taken as a whole, Coop stores represent an organization structure where employees enjoy

extensive pecuniary and non-pecuniary benefits. Coop workers are heavily involved with

management (indicated by considerable amounts of time spent on labor-management meetings).

The extent of attention paid to employee personal development in Coops is rarely observed in

other workplaces. The solidarity and cordial atmosphere within Coop stores, combined with the

fact that all workers are also owners, make Coops less prone to principal-agent problems (where

the incentives of managers are not aligned with those of workers). Compared to Coop, Gespa

stores have inferior institutional features. Gespa workers are less likely to feel the same sense of

belonging that Coop workers feel about their workplace. Relating these qualitative assessments

to the main research questions, I expect that Coop workers will react more positively than Gespa

workers to increased job satisfaction. In other words, the attitude-performance relationship

should be more significant in Coop stores than in Gespa stores.

III. Previous Theory and Empirics

While psychologists have conducted a remarkable amount of research on job satisfaction, 4

historically economists have always been a little more reluctant to study job attitudinal variables.

In his seminal economic paper on job satisfaction, Freeman (1978) explains this reluctance of the

profession: first, [attitude] is subjective variable which measures what people say rather than

what people do, and second, economists are wary about studying what purports to be

measuring individual utility. However, Freeman argues that this reluctance should be changed.

Using the National Longitudinal Survey (1966-71) and the Michigan Work Quality Survey

(1972-73), he shows that attitudinal variables, despite their subjectivity, can still contain useful

economic information. In a similar vein as Freeman, Hamermesh (1977) also urges more

economists to consider job satisfaction as an economic variable instead of distrusting it as a

subjective variable. Following these seminal papers, recently economists have paid more

attention to attitude variables, and more studies on job satisfaction have been published.

Although we still lack formal theories concerning job satisfaction, some common empirical

findings have been emerging.

Since the late 1970s, empirical works have produced consistent evidence on a negative

relationship between job satisfaction and turnover rate. A high turnover rate is unfavorable to the

organization, as it increases the direct cost of hiring labor. Freeman (1978) was among the first to

find empirical evidence that job satisfaction is a significant determinant of the probability to quit,

a result which is used by the author to argue that job satisfaction should not be distrust as a mere

subjective variable. The hypothesis was later confirmed by Akerlof, Rose, and Yellen (1988)

using a different dataset from the National Longitudinal Survey of Older Men. Similar findings

4
Please see Locke (1976), Judge, Thoresen, Bono, & Patton (2001) for a review of psychology studies on job
satisfaction.
are also obtained from studies done on samples outside of the US: Clark, Georgellis, and Sanfey

(1998) use data from the German Socio-Economic Panel to show that workers with higher

reported level of satisfaction are statistically more likely to quit than those with lower reported

level of satisfaction. Danish economists Kristensen and Westergard-Nielsen (2004) offer the

same evidence using data from the European Community Household Panel (ECHP). They also

rank various satisfaction domains according to their ability to predict quits: for example,

satisfaction with the Type of Work (such as challenging or mundane) is the most reliable

predictor of job quits, while satisfaction with Job Security is found to be the least reliable aspect.

Frijters, Shields, and Wheatley-Price (2004) study job satisfaction of public school teachers in

England and Wales and found that improving job satisfaction with non-pecuniary aspects of

work have a larger impact on reducing quit rates than improving satisfaction with pay.

Unfortunately, economic studies investigating the effect of job satisfaction on absenteeism,

another equally important job behavior, have not been numerous. According to Jones et al.

(2009), absenteeism refers to unscheduled absence of employees. Like quitting rates, high rates

of absenteeism is also unwanted by the organization because it imposes a number of costs on the

employer, such as the direct loss of output from absent employees, overtime for other employees

to fill in, temporary helping and extra management costs (Oi, 1962). Given that low job

satisfaction does seem to make employees more likely to quit job, one can reasonably expect that

it will also cause employee who cannot quit more likely to be absent. Indeed, an inverse

relationship between job satisfaction and absenteeism is occasionally found by psychologists,

such as Vroom (1964) and Clegg (1983). However, further research is desired in order to reach a

scholarly consensus.
 On the other hand, it is well-established in the economic literature that turnover rate and

absenteeism, among other work environment indicators, are strongly and inversely related to job

performance. Using data on the British coal mining industry Pencavel (1974) finds that high

level of industrial morale, as manifested by low levels of absenteeism, labor turnover, accidents,

and strikes has a positive and significant impact on output. The author also argues that this high

level of industrial morale reflects the co-operation extended by the workers to their

management, their interest in their job, and their willingness to assume responsibility that their

work is properly and expeditiously done. Ichniowski (1986) proposes a theoretical model to

identify the determinants of employee formal complaints received by the firm (called grievance

rates) and its effect on productivity. Using this model to analyze performance data from eleven

paper mills the author finds that a grievance-free plant is 1.3% more productive and up to 16.7%

more profitable than a plant that operates with an average grievance rate. Katz, Kochan, and

Gobeille (1983) study General Motors plants during the 1970s and find that grievance rates,

absenteeism, contract negotiation behavior are all negatively and significantly associated with

product quality, while employees ratings on the quality of their labor-management relations is

positively associated with product quality. This study is followed by a second paper (Katz,

Kochan, & Weber, 1982) which draws a similar conclusion using a different dataset from a large

durable goods manufacturer in the US.

A few studies have examined the direct link between employee attitudes and performance.

Bartel (2004) studies 160 branches of a Canadian bank and finds a positive relationship between

branch performance and employees satisfaction with quality of performance evaluation,

feedback and recognition at the workplace. The author argues that satisfaction with these

selected measures is important in determining the efficiency of High Performance Work Systems
(HPWSs) in that it captures the incentives dimension of the workplace (among the three

dimensions incentives, opportunities, and training, as described previously). A similar study is

done by Bartel, Freeman, Ichniowski, and Kleiner (2003). The authors analyze employee attitude

survey from nearly two hundred establishments of a major U.S. bank and offer evidence that

higher employee attitude level is associated with higher productivity, higher growth and lower

turnover at the branch level. On a theoretical ground, Katz et al. (1982) argue that worker

motivation and participation in decision-making will increase both organizational performance

and worker satisfaction, but this positive connection can only be maintained over time if the

organizational environment also maintains support for high level of labor involvement and labor-

management cooperation. If labor and management are not cooperative, or the worker does not

get rewarded for his involvement, his/her initial motivation and participation will eventually

wane, resulting in both lower performance and lower satisfaction. Similar lines of argument

could also be found from several other scholars (Goodman, 1979; Kochan and Dyer, 1976;

Walton, 1975; Walton, 1980).

An important strand in the literature focuses on the functioning of labor-managed firms

(LMFs) and employee-owned firms (EOFs). Research on economic performance of LMFs began

in the late 1950s, when state-owned enterprises and socialist states were still prevalent in the

world. However, after 50 years still it is unclear whether LMFs and EOFs have a performance

advantage over conventional capitalist firms. Theoretical work yield conflicting predictions.

Vanek (1970) associates employee ownership and participation in management with strong

incentives for labor, resulting in higher productivity compared to no ownership. In contrast,

Alchian and Demsetz (1972), Jensen and Meckling (1976) argue that that efficient monitoring of

labor requires the monitors to be claimant on the firms profits, and in case of LMFs, it is often
ambiguous who the main claimant of profit would be. Also, cooperatives structures exacerbate

free-rider problems arisen from team works, which will practically offset any initial incentive

gains from ownership (Holmstrom, 1982). Likewise, empirical studies on productivity of LMFs

do not offer a clear conclusion yet. For example, Craig and Pencavel (1995) study plywood

construction coops in North America find that coop mills are from 6% to 14% more productive

that their capitalist counterparts. But a comparable study done by Jones (2007) on Italian

construction firms found no evidence that coops are more efficient that conventional firms.

Finally, do EOFs and LMFs have positive effects on employee attitudes? Kruse and Blasi

(1995) assert that there is no a priori answer to this question. Employee-owners might be more

satisfied if they value ownership and perceive it as a mean to greater income, job security, and

more control over the workplace. In contrast, ownership might have negligible or negative effect

on attitudes if employees perceive no difference in their work lives, dislike the extra risk or

have raised expectations that are not fulfilled. Empirical estimations tend to find mixed results.

For instance, Greenberg (1980) analyzes survey from 550 employees of four U.S. plywood

cooperative and find that co-op membership is associated with higher satisfaction for workers.

Kruse (1984) offer evidence from two different companies with Employee Stock Ownership Plan

(ESOP) that ESOP workers exhibit no significant difference in satisfaction when compared to

the national sample of workers in comparable industry. My paper, comparing satisfaction across

Coop and Gespa stores, will hopefully shed some light on these inconclusive problems.

IV. Data and Method

A major goal of this paper is to assess the attitude-performance relationship at an

organizational level. Compared to previous studies that analyze this relationship at the individual

worker level, this aggregate approach is motivated by several theoretical rationales. The principal
motivation behind an attitude analysis at the organization level is the notion that individual

workers in the same firm share a group attitude (Bartel et al., 2003). This group attitude is

shaped by the workers common experience in their working lives. For instance, a poor working

condition will likely to introduce dissatisfaction to all workers working under that same

condition. Similarly, an understanding and fair manager will elicit positive satisfaction from

most workers under his management. In each case, individual workers satisfaction will converge

over time to a shared group attitude level, regardless of the initial individual attitude that they

brought when taking up their jobs. This proposition receives some empirical support by

Schneider, Goldstein and Smith (1995), where the authors show that the dispositions of people in

the same organization become increasingly homogeneous over time.

Additionally, some researchers hypothesize that positive shared attitudes are associated

with higher level of cooperation and collaboration among the workers (Ostroff, 1993). This level

of cooperation is an organizational measure and cannot vary within work units, and as such it is

unlikely to be affected by individual attitudes. A similar analogy could be made about the

performance of Eroski retail stores. In retail stores, the most apparent measure of performance is

the stores sales volume. Sales volume is an organizational level variable and therefore is

unlikely to be affected by any single workers satisfaction. Besides, there is often no objective

measure of individual productivity in a retail store setting. In this case, a measure of store-level

satisfaction is necessary in order to analyze the satisfaction-performance relationship.

Data on the performance of Eroski hypermarkets was obtained by Professor Takao Kato

and his colleagues to compile a monthly panel dataset spanning over 40 months from February

2006 to May 2009. This dataset is new and represent full access to a complete set of variables

concerning the internal functioning of 92 Eroski hypermarkets. Besides, in 2006 and 2008,
worker satisfaction surveys were conducted in all Eroski hypermarkets, providing

comprehensive cross-sectional data on the satisfaction level of individual workers. The surveys

questions total 68 and are the same ones in both years; each question is essentially a statement on

an specific aspect of the workplace, such as company policies, pay, promotion, communication

with managers etc. On a 5 point scale, workers are asked to assign a numerical value to their

level of satisfaction (with 5 being the most satisfied) in response to each of these statements. By

matching each stores performance with its workers responses in the two satisfaction surveys, I

can assess how employee attitudes are related to organizational economic outcomes.

To capture the employee satisfaction at the store-level, I followed Bartel et al. (2003) and

created an Employee Attitude Index (EAI) for each store. First, an individual index is computed

for each worker by taking the arithmetic mean of their responses to all 68 questions on the

survey. Since each store has multiple workers, the EAI is then computed as the mean of the

individual indices obtained from each worker working in a given store. In all the empirical

analysis that follows, EAI is the main index for job attitudes. However, two additional attitude

indices will be specified for robustness check: one using principal component analysis, the other

one using theoretical grouping of survey questions. Detailed implementation will be described in

later sections.

For each store, I obtain two yearly observations of EAI (in year 2006 and 2008). In

contrast, the performance data consists of only monthly variables. To match a stores

performance variables with its corresponding EAI, recalculation of monthly performance

variables is therefore required. For each of the performance-related variables, I calculated their

yearly values by taking the arithmetic mean of their monthly values in each given year (2006 and

2008). Stores that have observations only for one year are eliminated. In the final dataset, each
store has two yearly performance & survey observations. The total number of observations is

150, corresponding to 75 stores (25 Coop, 50 Gespa). Table 1 and 2 provide the full summary

statistics of relevant variables.

The summary statistics gives rise to a rather intriguing observation. It seems that on

average Coop workers to have a lower satisfaction than Gespa workers in both year 2006 and

2008. A two-group t-test shows that this difference is statistically significant at the 5% and 1%

level in year 2006 and year 2008 respectively. At first, this difference might seem a little

counter-intuitive, given that Coop worker-members enjoy far more benefits than their Gespa

counterparts. However, two main interpretations could be proposed. First, as described in

previous part, the extent to which HR policies are implemented in Coop is considerably larger

than in Gespa. Recently there have been a few arguments that innovative HR policies are

associated with increasing work intensity and stress for the workers (Godard, 2001; Godard,

2010). For example, in production teams (a popular innovative HR practice that is present in

both Coop and Gespa stores), workers often feel obliged to performed well due to peer pressure

and group norms. Consequently, the gain in productivity comes at the expense of workers

satisfaction and mental wellness. Second, it is also probable that due to their attachment with the

workplace, Coop workers have higher job expectations than Gespa workers. Expectations that

are not fulfilled could lead to lower job satisfaction (Kruse & Blasi, 1995). The qualitative

evidence about the institutional framework of Coops might give more support for the raised

expectations interpretation. It is unlikely that Coop environments, with emphasis on workers

personal development, would cause more stress for the workers. In either case, the issue deserves

more thorough investigations and is a potentially important topic for future research.

V. Econometric Specifications and Estimates

 To estimate the attitude-performance relationship in a retail context, I adopt a production

function for retail firms based on that of Jones et. al. (2010), who study the efficiency of HRM

practices in Finish stores. The starting point is the familiar Cobb-Douglas production function:

Qit = Ait (Sit)p (ELit)q

Where Qit is a performance measure of store i in year t, Sit is the floor space, and ELit is effective

labor (specified as the total number of worked hours), and Ait is the productivity parameter.

According to Jones et. al. (2010), the productivity parameter could be decomposed into

permanent effects (ie. store fixed effects), time effects, and other effects which may vary across

time and establishments (in our case this is EAI). As EAI may have an effect on store

productivity, I specify the productivity parameter as: Ait = e(Year) + (EAI) + +u

. Lastly, I include

market condition as an additional control, since it is believable that retail revenue is strongly

related to market demand. Taking the log of the above production function, I obtain:

lnYit = lnAit + p(lnSit) + q(lnELit)

lnYit = [(Yeart) + (EAIit) + i + uit] + p(lnSit) + q(lnELit) +(Marketit)

Since floor space is unchanged throughout the time span of the data, p(lnSit) is a constant and

thus can be rewritten more compactly in the store fixed effect term i. Rearranging and adding an

interaction term EAI*Coop, I get clean estimable equations:

(1) lnYit= 0 + 1(lnLit) + 2(lnMit) +3(Year)t + 4(EAIit) + i + uit

(2) lnYit= 0 + 1(lnLit) + 2(lnMit) +3(Year)t + 4(EAIit) +5(Coopi*EAIit) + i + uit

where Q it is a performance measure, Lit is the average monthly number of worked hours, Mit is

the average monthly commercial index (measured locally at the region where the store is

located), and EAIit is the employee attitudes index. As mentioned earlier, Yit will be a set of three

variables: sales volume (Qit), turnover rate (Tit), and absenteeism rate (Ait). To make easier
interpretations, Yit is specified as an exponential function of turnover and absenteeism (Yit=eT

and Yit=eA). When taking the log to get the estimable equations, the dependent variables Tit and

Ait will be in level form.

Employee Attitudes and Real Sales

To estimate the relationship between employee attitudes and real sales, I estimated the following

equations (1) and (2) with the dependent variable (denoted by lnQit) being the real sales of store i

in year t. Equation (1) presupposes that store structures have no effect on the relationship

between EAI and real sales. Equation (2) includes the interaction term between the Coop dummy

and EAI to allow for store structure effects on the EAI-Sales relationship. In theory, equation (2)

should include a Coop dummy (no interaction) in order to be fully specified. However, since

store structure does not change over time, the effect of the Coop dummy is already incorporated

in the fixed effect term i.

Table 3 reports the coefficient estimates for equation (1) and (2). For our purpose we are

most interested in the estimates for 4 in equation (1) and 4, 5 in equation (2). From panel (1),

we see that leaving the store structure variable uncontrolled leads to insignificant estimates of

EAI. This result suggests that either (a) EAI is not related to sales performance regardless of the

store being Coop or Gespa, or (b) EAI is related to sales in both types of store, but the signs of

the relationship are opposites, meaning EAI is positively related to sales performance in one type

of stores, and inversely related to sales in the other. Panel (2) offers evidence in favor of the

latter interpretation. When store structure variable is included, estimate for the interaction term

(Coop*EAI) is positive and significant at the 1% level. A linear combination test of (EAI +

Coop*EAI) yields the point estimate 0.14 with a p-value=0.02. This estimate is interpreted as:

given a store being Coop, on average a one unit increase in its Employee Attitude Index
corresponds to 14% increase in the average monthly sales of the store. This empirical finding

suggests that the attitudes-sales performance is a positive relationship which is enhanced by the

level of employee ownership.

Employee Attitudes and Turnover Rate

Again, equation (1) and (2) are estimated using the average monthly turnover of store i in

year t as the dependent variable. 5 Since Coop and Gespa worker-members are guaranteed to have

100% job-security, what the dependent variable represents is more or less a voluntary separation

of employee from employers (however, not all Coop and Gespa workers are members, and these

non-members could be laid off involuntarily, but we do not have sufficient data to confirm or

refute this). A high rate of separation is undesirable, because stores have to spend resources on

the hiring and training of new workers, which in turn lowers their economic efficiency. The year

dummy is included because for the most part 2008 was a year with a very favorable market (the

global recession did not set in until November 2008). Such favorable market conditions in 2008

would naturally induce a lower turnover rate and correlate with employees job perceptions (i.e.

EAI) as well.

Table 4 reports the fixed effect estimates for equation (1) and (2) using turnover as the

dependent variable. The coefficient estimate for EAI is statistically insignificant in both

equations. For equation (2), a linear combination test of (4 + 5) yields the point estimate -

.031538 with t-stat= -1.55 (p-value=0.126). One might take this as suggestive evidence that a

negative relationship is present in Coop (with p-value bordering the 0.10 threshold). The

imprecision might be due to the limited number of observations in the dataset. However, it is

5
Previous drafts of my paper did not include the labor variable (lnLit) in the turnover and absenteeism regressions
because of endogeneity concerns. However, thanks to comments I received during the honors presentations and
upon a more careful examination of past literature, I decide to re-include the labor variable in order to create a more
systematic and complete picture.
safer to say that in both Coop and Gespa, a linear relationship between employee attitudes and

store turnover does not exist. On another hand, the estimates for labor (lnLit) and year (Yeart) are

negative and significant in both equations, suggesting that bigger stores have higher turnover

rate, and that turnover are lower in 2008 than in 2006 (which may be an effect of favorable

market conditions in 2008).

Employee Attitudes and Absenteeism

Equation (1) and (2) are estimated with the dependent variable Ait being the average

monthly absenteeism rate of store i in year t. In order to calculate Ait for each store, total monthly

worked man-hours is subtracted from the total monthly scheduled worked hours. This difference

is unscheduled absent hours of the total workforce; dividing it by the scheduled work hours to

obtain a monthly ratio R it (ie. unscheduled absent hours over scheduled work hours). Finally, for

each store, Ait is computed as the monthly average of this ratio R it over a given year (2006 or

2008). A high Ait means that employees are absent a large part of their scheduled hours. This is

undesirable to the organization, since absence of employees imposes extra costs such as finding a

replacement, direct loss of output due to absence, among others.

Table 5 reports the fixed effect estimates for equation (1) and (2) using absenteeism rate as

the dependent variable. As in the turnover regressions, a very similar picture emerges here. The

coefficient estimate for EAI is statistically insignificant in both equations. For equation (2), a

linear combination test of (4 + 5) yields the point estimate -.016747 with t-stat= -0.56 (p-

value=0.579). Again, one could argue that there is a piece of suggestive evidence, particularly in

equation (1). In (1), the estimate for EAI is negative (-0.38) and bordering significance (p-

value=0.106). One could say that, without controlling for store structure, raising EAI is

associated with a decrease in absenteeism rate. However, this effect fades away as soon as the
Coop interaction term is introduced in equation (2). The regression results suggest that in both

Coop and Gespa, a linear relationship between employee attitudes and absenteeism rate does not

exist. On a side note, the estimates for labor (lnLit) and year (Yeart) are significantly positive and

negative (respectively) in both equations, a result that is consistent with that of the turnover

regressions.

Robustness Checks

In essence, the preliminary findings suggest that attitudes and sales volume are positively

related in Coop (not in Gespa), while attitudes and turnover, attitudes and absenteeism are not

related regardless of store structure. In order to verify the robustness of the previous findings, I

have performed two checks: a data-driven principal component analysis and a theory-driven

grouping of survey questions.

Principal component analysis applied on the 68 survey questions produces in 4 main

components. Since the survey responses were highly correlated, the resulting first component

clearly dominates the other three (the first component explains over 70% of the variations in the

initial 68 questions). I labeled this first component Satisfaction Climate; Satisfaction Climate

average -2.69 for all stores, 1.20 for Gespa stores and -3.21 for Coop stores. A two sample t-test

confirms that the difference is significant at 1% level, implying that Coop workers are less happy

than Gespa workers. The robustness check is performed by substituting Satisfaction Climate in

place of EAI in the regressions of equation (1) and (2). Estimation results, which are reported in

table 6, are strikingly similar to when EAI was used. Again, satisfaction climate is positively

related to sales performance in Coop stores (but not Gespa stores); it is not related to turnover

and absenteeism in either type of stores.

 The second check relies on grouping of survey questions that address similar aspects of

working lives. The use of EAI and principal components more or less lump all the survey

questions together to create a comprehensive index, while grouping questions will create

narrower, more detailed indices. I adopted the classification of workplace variables provided by

Appelbaum et. al. (2000) in order to decide which questions to group together. Appelbaum et. al.

originally classify objective variables of the workplace into the three pillars (incentives,

opportunities and skills) of a High Performance Work System (HPWS), in contrast to my survey

data which consists of subjective variables. In adopting their classification, however, I follow the

rationale set out by Jones et. al. (2010), who argue that these objective variables only matter to

the extent of the workers perception of them. For instance, if the pay is objectively high

(compared to industry standards) but the workers are still unsatisfied with it (ie. subjectively

perceive the pay to be low), then that high pay will not enhance efficiency of human resource.

The questions are then chosen to fit into 7 groups: Autonomy of Workers, Communication,

Training, Recruitment/Selection, Job Security, Promotion/Pay, and Intrinsic Reward. Then for

each group I take the average of the survey responses in order to create a group index. Table 7

reports summary statistics for each question group: in all groups Gespa workers are happier than

Coop workers. Finally, I substitute these group indices in place of EAI in the regressions of

equation (1) and (2). Compared to the conclusions reached earlier using EAI, the estimation

results using attitudes group, given in table 8, seem to be ambivalent. 6 Out of the 7 groups, 4

groups (Autonomy, Communication, Training and Intrinsic Reward) produce very similar results

and further confirm the initial EAI findings. The other three groups (Selection, Job Security and

Promotion/Pay) do not lend strong support for the initial findings. However, one must keep in

6
Table 8 only reports results with lnQit being the dependent variable. Regressions of turnover and absenteeism
produce insignificant estimates for attitudes, which is consistent with previous findings. They are available upon
request.
mind that Coop/Gespa stores have distinctive institutional features regarding these three work

aspects. Job security is practically 100% for all members; the wage range is very compressed

compared to industry standard, and recruitment/selection could be strongly affected by self-

selection. These peculiar features might be the reason for insignificant estimates of attitudes

concerning these groups.

Discussion

My empirical analysis reveals that attitudes and sales volume are positively related in Coop

stores (but not Gespa), while attitudes are not related to turnover and absenteeism. In light of

previous empirical study on similar subjects, this finding is both new and expected. As outlined

in the literature review part, previous studies on job attitudes and producer cooperatives have

found very mixed results. There is virtually no consensus regarding both attitudes and

cooperatives. In a way, my mixed empirical findings reflect this ambivalence of past literature.

However, by combining my econometric results with institutional features of Coop/Gespa

stores, several claims could be supported. One could argue that the result is favorable to the

Coop structure. Interviews of store managers, conducted by Professor Takao Kato and his

colleagues, reveal that among the three performance variables used in this study, sales volume is

the most important one. Store managers are unanimously concerned with sales growth. Reducing

turnover and absenteeism is relevant to an efficient organization, but it is not the top priority of

Eroski managers. Following this reasoning, one could say that only Coop stores could potentially

boost sales by increasing the satisfaction of its employees; therefore, the result is more favorable

to Coop stores than Gespa stores.

The mechanism behind the attitudes-sales relationship in Coop stores deserves some

thoughts. Previous descriptions of Eroski stores have made clear that Coop stores possess many
institutional advantages over Gespa stores. Compared to their Gespa colleagues, Coop workers

enjoy more extensive benefits and have more decision-making power (both at the store level and

at the Mondragon wide level). Most importantly, Coop workers have higher financial stakes in

the stores, and receive a higher interest payment out of the store profits. Coops employee

involvement and employee ownership schemes create a powerful incentive mechanism for Coop

workers to be productive. Furthermore, Coop workers probably have very close relationship with

managers (as the workers are involved in management as well). Previous studies have suggests

that the relationship between the worker and his employer is important in determining the extent

to which the worker will reciprocate to a gift by employer (Bellemare & Shearer, 2007). If one

views an increase in satisfaction as a gift, then my empirical finding does make sense. The

better relationship between Coop workers and employers make the workers more likely to react

positively to an increase in satisfaction.

VI. Conclusion

For over 70 years, the attitudes-performance problem has been the subject of much

research in social sciences. Producer cooperatives and labor-managed firms have also attracted

much attention from scholars in various fields. This paper, a study of attitudes-performance in a

cooperative setting, is a contribution to both of these hot topics. By estimating fixed-effect

models, I find that employee attitudes can potentially help boost sales volume in Coop stores,

and that employee attitudes are not related to store turnover and absenteeism regardless of

ownership structure.

A recent econometric study on the Eroski chain has shown evidence that Coop are better-

performers than Gespa in terms of sales growth (Arando et. al. 2011). The authors, estimating a

first difference model, find that Coop hypermarkets can grow sales significantly faster than
Gespa stores. They argue that Coops superior performance is due to its institutional advantages

over other organizational structures (such as substantial employee involvement, workers having

large financial stake in the firm). My findings in this paper are, in a way, very consistent with

Arando et. al.s. There is a powerful incentive mechanism within Coop stores that give them a

competitive edge against other store structure. Happier workers in Coop are also the more

productive workers; they have the incentives to give back to their organizations.

My approach is, however, not without limitations. Estimations using a fixed effect model

do not make clear the direction of causality. Following the evidence that attitudes and

performance are positively related in Coop, I have argued that a gift-exchange story is

happening. However, there is no econometric evidence to support this story so far. It is probable

that workers in stores that have higher sales will become happier; in other words, the direction of

causality is reversed. It could also be the case that a third factor, such as workers personal

characteristics, is moderating both variables. To further verify the causality direction, stronger

evidence needs to be found. Another concern is external validity. Mondragon and Eroski is a

peculiar case to start with; they do not necessarily represent the larger population of labor

managed firms. Any attempt to generate the findings of this paper to other LMFs needs a more

solid theoretical and empirical ground. Clearly, there are many avenues and open questions

concerning employee attitudes and producer cooperatives that future research can fruitfully

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Table 1: Summary Statistics
Year 2006 Year 2008
All stores Coop Gespa All stores Coop Gespa

14.62881 14.90309 14.49167 14.57685 14.90129 14.41463

lnQit (.6017183) (.5750795) (.5720463) (.5667034) (.5432636) (.5097957)

.0823816 .0917774 .0776837 .0543834 .0538689 .0546406

Tit (.0332648) (.0407377) (.0281194) (.0192625) (.0214003) (.0183258)

.1761547 .1527637 .1878502 .0875222 .0711595 .0957035

Ait (.0363845) (.0261209) (.0353035) (.0491521) (.0333029) (.0538556)

4.812429 4.891077 4.773104 4.766278 4.861817 4.718508

lnLit (.5032228) (.5634725) (.4713694) (.4848114) (.5291684) (.4591555)

4.621611 4.614926 4.624953 4.602615 4.607561 4.600142

lnMit (.0091259) (.0083451) (.0075806) (.0196125) (.0162695) (.0207974)

3.332617 3.249624 3.374113 3.504162 3.355028 3.578729

EAIit (.2699095) (.3277838) (.228307) (.2438252) (0.2404267) (0.2108295)

.3333333 1 0 .3333333 1 0
COOPi (.474579) (0) (0) (.474579) (0) (0)
N 75 25 50 75 25 50
Table 2: Summary Statistics (cont.)
Pooled dataset
All stores Coop Gespa

14.60283 14.90219 14.45315

lnQit (.5830915) (.553661) (.5404609)

.0683825 .0728231 .0661622

Tit (.0305144) (.0374667) (.0262996)

.1318384 .1119616 .1417769

Ait (.0619229) (.0507562) (.0647814)

4.789353 4.876447 4.745806

lnLit (.492986) (.5411853) (.4637588)

4.612113 4.611243 4.612547

lnMit (.0179781) (.0133265) (.0199493)

3.418389 3.302326 3.476421

EAIit (.2703946) (.2894332) (.2416018)

.3333333 1 0
COOPi (.4729838) (0) (0)
N 150 50 100
Table 3: EAI-Sales Regressions
Dependent variable: lnQit
(1) (2)
lnLit 0.883386*** 0.773486***
(4.27) (3.71)
lnMit 0.027583 -0.20946
(0.05) (-0.42)
Yeart -0.00249 -0.00911
(-0.14) (-0.51)
EAIit -0.04765 -0.11803
(-0.81) (-1.58)
Coopi*EAIit 0.259475***
(2.88)
N 150 150
R2 (within groups) 0.3852 0.4330
Note: t-statistics computed using robust standard errors are shown in parentheses.
***: p-value<0.01; **: p-value<0.05; *:p-value<0.1
For equation 2, a linear combination test of (4 + 5) yields the point estimate 0.141443 with t-
stat=2.37 (p-value=0.02).

Table 4: EAI-Turnover Regressions

Dependent variable: Tit
(1) (2)
lnLit -.0704216** -.0569458*
(-2.02) (-1.72)
lnMit .050556 .0796217
(0.34) (0.54)
Yeart -.0144276*** -.0140219***
(-5.65) (-5.59)
EAIit -.008352 .0002783
(-0.69) (0.02)
Coopi*EAIit -.0318164
(1.36)
N 150 150
R2 (within groups) 0.5364 0.5460
Note: t-statistics computed using robust standard errors are shown in parentheses.
***: p-value<0.01; **: p-value<0.05; *:p-value<0.1
For equation 2, a linear combination test of (4 + 5) yields the point estimate -.031538 with t-
stat= -1.55 (p-value=0.126).
Table 5: EAI-Absenteeism Regressions
Dependent variable: Ait
(1) (2)
lnLit .1055503*** .0931941**
(2.73) (2.48)
lnMit .0889021 .0622512
(0.30) (0.19)
Yeart -.0377763 *** -.0381483***
(-10.76) (-9.99)
EAIit -.0380067 -.04592
(-1.66) (-1.54)
Coopi*EAIit .029173
(0.66)
N 150 150
R2 (within groups) 0.7756 0.7768
Note: t-statistics computed using robust standard errors are shown in parentheses.
***: p-value<0.01; **: p-value<0.05; *:p-value<0.1
For equation 2, a linear combination test of (4 + 5) yields the point estimate -.016747 with t-
stat= -0.56 (p-value=0.579).

Table 6: Principal Component Analysis

Dependent variables: lnQit, Tit and Ait
lnQit Tit Ait
lnLit .7702773 *** -.0567258* .0931449**
(3.70) (-1.70) (2.46)
lnMit -.2171134 .0796562 ..0613668
(-0.44) (0.54) (0.19)
Yeart -.004495 -.01405*** -.0381444 ***
(-0.51) (-5.61) (-10.03)
SatClimateit .0046964 .0000285 -.0017808
(-1.62) (0.05) (-1.51)
Coopi*SatClimateit .0101777*** -.0012271 .0011026
(2.91) (-1.36) (0.64)
N 150 150 150
R2 (within groups) 0.4344 0.5455 0.7768
Note: t-statistics computed using robust standard errors are shown in parentheses.
***: p-value<0.01; **: p-value<0.05; *:p-value<0.1
Table 7: Summary Statistics - Grouping of Attitude Variables

All Coop Gespa

Opportunities to Participate
Autonomy of Workers (Liberty to take actions or respond to 3.596449 3.514082 3.637632
situations and/or problems that may arise) (.2648055) (.2839147) (.245969)
Communication (Availability of regular and structured meetings to
makes suggestions for improvements; Channels through which all 3.257674
3.135965 3.318529
staff's suggestions and complaints reach the higher levels of the (.3239095)
company; EROSKI ability to generate and collect innovative ideas by
(.3532045) (.29144)
the staff)
Skills
Training (Personal and professional development opportunities 3.195459
provided by GRUPO EROSKI; Training provided by the company 3.067458 3.259459
(.3146636)
related to my particular job responsibilities; Training opportunities to (.3379614) (.2829762)
improve my abilities in the current work post.)
Selection (Company's selection process to recruit the most suitable 2.825095
person for the vacancy to be filled)
2.710859 2.882214
(.3589144)
(.3995707) (.3239933)
Incentives
Job Security (My chances of keeping a job in the company, even if 3.820637 3.78944 3.836236
not in the same post) (.2472609) (.2232929) (.2580704)
Promotion/Pay (Actions, initiatives and improvements fostered by
the company related to job-related benefits (insurance, credit); Personal
appraisal of payment for my work post, in general, as compared with 3.255338 3.181163 3.292426
posts of similar responsibility in other companies; Opportunities of (.2942494) (.3128016) (.2787739)
promotion provided by the company to its qualified employees prior to
outsourcing new staff members)
Intrinsic Reward/Acknowledgement (How my input and opinions
are taken into account (reception, attention, response etc.); Sense of
being part and sharing the challenges and objectives of an organization
such as GRUPO EROSKI; My work provides me with the possibility to
3.311761 3.174417 3.380434
put my knowledge and abilities into practice to develop myself
professionally; Company's sensitivity to recognizing a job well done; (.3066061) (.3253858) (.2734814)
Opportunities at hand to provide and develop my creativity in my
working environment (improvements, suggestions, initiatives)

N 150 50 100
 Table 8: Attitude Groups Regressions
lnQit Autonomy Communication Training Selection Job Security Promotion/Pay Intrinsic Reward

lnLit .8616943*** .8113855*** .798349*** .8761787*** .8131785*** .7652143*** .7660558***

(4.25) (3.84) (3.81) (4.04) (3.72) (3.45) (3.65)
lnMit -.1401789 -.1801768 -.088201 -.023464 .0084436 .0344074 -.2729294
(-0.28) (-0.35) (-0.17) (-0.05) (0.02) (0.07) (-0.55)
Yeart -.0069399 -.0063426 -.0061197 -.0040448 -.0012782 .0010279 -.0048747
(-0.80) (-0.72) (-0.70) (-0.46) (-0.16) (0.12) (-0.53)
AttGrpit -.0522209 -.0659473 -.072198 -.0281404 -.115498** -.1348347* -.1043778
(-1.06) (-1.21) (-1.28) (-.055) (-2.09) (-1.67) (-1.60)
Coop*AttGrp .1927017 *** .1874902*** .2136355 *** .0893804 .0620464 .2257487** .2166086***
(2.96) (2.80) (2.76) (1.17) (0.71) (2.04) (2.80)
N 150 150 150 150 150 150 150
R-sq 0.4153 0.4204 0.4219 0.3873 0.4196 0.4276 0.4280
LinCom .1404807*** .121543*** .1414375** .0612401 -.0534516 .090914 .1122308***
(2.99) (2.74) (2.51) (1.09) (-0.74) (1.40) (2.12)