System giving employees stake in a company's ownership
Employee stock ownership
, or
employee share ownership
, is where a
company
's employees own
shares
in that company (or in the parent company of a group of companies). US employees typically acquire shares through a share option plan. In the UK, Employee Share Purchase Plans are common, wherein deductions are made from an employee's salary to purchase shares over time.
[1]
In Australia it is common to have all employee plans that provide employees with $1,000 worth of shares on a tax free basis.
[2]
[
better source needed
]
Such plans may be selective or all-employee plans. Selective plans are typically only made available to senior executives. All-employee plans offer participation to all employees (subject to certain qualifying conditions such as a minimum length of service).
Most corporations use stock ownership plans as a form of an
employee benefit
.
[3]
Plans in
public companies
generally limit the total number or the percentage of the company's stock that may be acquired by employees under a plan.
[4]
Compared with
worker cooperatives
or
co-determination
, employee share ownership may not confer any meaningful control or influence by employees in governing and managing the corporation.
In the United States,
private companies
often use employee share ownership to maintain the political feasibility of the founding
business plan
and culture after the founders have left. Generally, the most senior employees own a majority stake and represent the leading voice in the company that employs them. They may be required to sell back the shares upon leaving the company.
A number of countries have introduced tax advantaged share or share option plans to encourage employee share ownership.
Types of plan
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To facilitate employee stock ownership, companies may allocate their
employees
with
stock
, which may be at no upfront cost to the employee, enable the employee to purchase stock, which may be at a discount, or grant employees stock options. Shares allocated to employees may have a holding period before the employee takes ownership of the shares (known as vesting). The vesting of shares and the exercise of a stock option may be subject to individual or business performance conditions.
Various types of employee stock ownership plans are common in most industrial and some developing countries. Executive plans are designed to recruit and reward senior or key employees. In the U.S. and the UK there is a widespread practice of sharing this kind of ownership broadly with employees through plans in which participation is offered to all employees. The tax rules for employee share ownership vary widely from country to country. Only a few, most notably the U.S., the UK, and Ireland have significant tax laws to encourage broad-based employee share ownership.
[5]
For example, in the U.S. there are specific rules for
Employee Stock Ownership Plans
(ESOPs). In the UK there are two all-employee tax advantaged plans that enable employees to acquire shares: the
Share Incentive Plan
and the
Sharesave
share option plan.
Varieties of employee share ownership plan (including associated cash based incentive plans) include:
Direct purchase plans
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Direct purchase plans simply allow employees to buy shares in the company with their own money. In several countries, there are special tax-qualified plans that allow employees to buy stock either at a discount or with matching shares from the company. For instance, in the U.S.,
employee stock purchase plans
enable employees to put aside after-tax pay over some period of time (typically 6?12 months) then use the accumulated funds to buy shares at up to a 15% discount at either the price at the time of purchase or the time when they started putting aside the money, whichever is lower. In the U.K.,
Share Incentive Plans
allow employee purchases that can be matched directly by the company.
Stock options
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]
Stock options
give employees the right to buy a number of shares at a price fixed at grant for a defined number of years into the future. Options, and all the plans listed below, can be given to any employee under whatever rules the company creates, with limited exceptions in various countries.
Restricted stock
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Restricted stock
and its close relative restricted stock units give employees the right to acquire or receive shares, by gift or purchase, once certain restrictions, such as working a certain number of years or meeting a performance target, are met.
Phantom stock
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]
Phantom stock
pays a future cash bonus equal to the value of a certain number of shares.
Stock appreciation rights
[
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]
Stock appreciation rights
provide the right to the increase in the value of a designated number of shares, usually paid in cash but occasionally settled in shares (this is called a "stock?settled" SAR).
Employee ownership
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]
Employee ownership is a way of running a business that can work for different sized businesses in diverse sectors.
[6]
Employee ownership requires employees to own a significant and meaningful stake in their company.
[7]
The size of the shareholding must be significant. This is accepted as meaning where 25 percent or more of the ownership of the company is broadly held by all or most employees (or on their behalf by a
trust
).
[8]
There are three basic forms of employee ownership:
[9]
- direct ownership
of shares by all employees as individuals;
- indirect (or trust)
ownership on behalf of all employees by the trustee of an
employee trust
; and
- the
hybrid
model which combines both direct and indirect ownership.
In addition, the employees' stake must give employees a meaningful voice in the company's affairs by it underpinning organisational structures that promote employee engagement in the company.
[10]
Employee ownership can be seen as a business model in its own right, in contrast to employee share ownership which may only provide selected employees with shares in their company and an insignificant overall shareholding.
In the UK organisations such as the Employee Ownership Association (EOA),
Scottish Enterprise
,
Wales Co-operative Centre
and
Co-operatives UK
play an active role in promoting employee ownership.
An employee controlled company is a majority employee-owned company. This might arise through an employee-buyout. This can be set up through an
employee ownership trust
.
Employee-owned companies
are totally or significantly owned (directly or indirectly) by their
employees.
Different forms of employee ownership, and the principles that underlie them, have contributed to the emergence of an international
social enterprise
movement. A public service mutual, by definition, has a significant degree of employee ownership, influence or control, but most
public service mutuals
identify themselves as social enterprises rather than employee owned.
[11]
A
worker cooperative
is a
cooperative
owned and self-managed by its workers. It is a type of employee owned company that operates according to the international values of co-operation and adheres to an additional code, beyond the core international principles, focused on democracy and participation in the workplace.
[12]
[13]
The most celebrated (and studied) case of a group of companies based wholly on co-operative principles is the Spanish
Mondragon Cooperative Corporation
.
[14]
Spanish law, however, requires that members of the
Mondragon Corporation
are registered as self-employed and are not employees. This further differentiates this type of co-operative ownership (in which self-employed owner-members each have one voting share, or shares are controlled by a co-operative legal entity) from employee ownership (where ownership is typically held as a block of shares on behalf of employees using an employee ownership trust, or company rules embed mechanisms for distributing shares to employees and ensuring they remain majority shareholders).
[15]
By country
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]
United Kingdom
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]
Employee Share Ownership Plans (ESOPs) became widespread for a short period in the
UK
under the government of
Margaret Thatcher
, particularly following the
Transport Act 1985
, which deregulated and then privatised bus services. Councils seeking to protect workers ensured that employees accessed shares as privatisation took place, but employee owners soon lost their shares as they were bought up and bus companies were taken over.
[16]
The disappearance of stock plans was dramatic.
[17]
United States
[
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]
In the United States, there is a widespread practice of employee stock ownership. It began with industrial companies and today is particularly common in the technology sector but also companies in other industries, such as
Whole Foods Market
,
WinCo Foods
, and
Starbucks
.
In his
2020
presidential campaign,
Bernie Sanders
proposed that 20% of stocks in corporations with over $100 million in annual revenue be owned by the corporation's workers.
[18]
See also
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]
References
[
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]
- ^
"Employee Stock Purchase Plan (ESPP)"
.
Practical Law
. Retrieved
2023-12-23
.
- ^
Australian Tax Office|
https://www.ato.gov.au/general/employee-share-schemes/employers/types-of-ess/concessional-ess/taxed-upfront-scheme---$1,000-reduction/
- ^
"Attitudes to employee share ownership - See it from their perspective"
(PDF)
.
ProShare
. 2018
. Retrieved
13 November
2019
.
- ^
See, for example, in the UK, The Investment Association Principles of Remuneration (1 November 2019) Rule 2 xi (Dilution)
- ^
National Center for Employee Ownership
, Employee Ownership for Multinational Companies, 2010
- ^
Moving to Employee Ownership - a brief guide for employees
(PDF)
. URN BIS/13/939. Department for Business, Innovation and Skills. 2013. p. 2.
- ^
Nuttall, Graeme (2012).
Sharing Success: The Nuttall Review of Employee Ownership
(PDF)
. Department for Business, Innovation & Skills. pp. 5, 20.
- ^
Robinson, Andrew; Pendleton, Andrew (2019).
Employee Ownership In Britain: Size and Character
(PDF)
. White Rose Employee Ownership Centre. p. 1.
- ^
Nelson-Jones, John; Nuttall, Graeme (1987).
Employee ownership ? legal and tax aspects
. Fourmat. Chapter 8.
ISBN
1-85190-033-0
.
- ^
Lampel, Joseph; Banerjee, Aneesh; Bhalia, Ajay (2017).
The Ownership Effect Inquiry: What Does the Evidence Tell Us?
(PDF)
. The Ownership Effect Inquiry. p. 11.
- ^
Social Enterprise UK (April 2018).
"Public service mutuals: The state of the sector"
(PDF)
.
gov.uk
. Retrieved
13 November
2019
.
- ^
"Worker co-operative code international translations"
.
Co-operatives UK
. 21 May 2018
. Retrieved
13 November
2019
.
- ^
Nuttall, Graeme (4 July 2012).
"Sharing Success: The Nuttall Review of Employee Ownership"
(PDF)
.
GOV.UK
. Retrieved
13 November
2019
.
- ^
Whyte, W. F. and Whyte, K. K. (1991)
Making Mondragon
, New York: ILR Press/Itchaca.
- ^
Erdal, D. (2008) Local Heroes: How Loch Fyne Oysters Embraced Employee Ownership and Business Success, London: Viking.
- ^
Pendleton, Andrew; McDonald, John; Robinson, Andrew; Wilson, Nicholas (1996-06-01).
"Employee Participation and Corporate Governance in Employee-Owned Firms"
.
Work, Employment and Society
.
10
(2): 205?226.
doi
:
10.1177/0950017096102001
.
ISSN
0950-0170
.
S2CID
154299458
.
- ^
Trewhitt, Lisa (2000).
"Employee buyouts and employee involvement: a case study investigation of employee attitudes"
.
Industrial Relations Journal
.
31
(5): 437?453.
doi
:
10.1111/1468-2338.00175
.
ISSN
1468-2338
.
- ^
"Corporate Accountability and Democracy"
.
Further reading
[
edit
]
- Joseph Blasi, Douglas Kruse; Bernstein, Aaron (2003),
In the company of owners: The Truth about Stock Options (and why Every Employee Should Have Them)
, New York, NY: Basic Books,
ISBN
9780465007004
,
OCLC
50479205
- Rosen, Corey; Case, John; Staubus, Martin (2005),
Equity: Why Employee Ownership is Good for Business
, Boston, Mass.: Harvard Business School Press,
ISBN
9781591393313
,
OCLC
57557579
- Curl, John (2009)
For All The People: Uncovering the Hidden History of Cooperation, Cooperative Movements, and Communalism in America
, PM Press,
ISBN
978-1-60486-072-6
- Staubus, Martin (2011),
"Creating a High-Performing Workplace"
,
Employee Ownership Insights
(Summer 2011), The Beyster Institute, archived from
the original
on 2017-01-18
, retrieved
2011-11-29