Employee stock ownership
   HOME

TheInfoList



OR:

Employee stock ownership, or employee share ownership, is where a
company A company, abbreviated as co., is a legal entity representing an association of people, whether natural, legal or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specific, declared ...
's employees own
shares In finance, financial markets, a share is a unit of Equity (finance), equity ownership in the capital stock of a corporation, and can refer to units of mutual funds, limited partnerships, and real estate investment trusts. Share capital refers t ...
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. In Australia it is common to have all employee plans that provide employees with $1,000 worth of shares on a tax free basis. 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 Employment is a relationship between two parties regulating the provision of paid labour services. Usually based on a contract A contract is a legally enforceable agreement between two or more Party (law), parties that creates, defines ...
. 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. Compared with
worker cooperative A worker cooperative is a cooperative owned and self-managed by its workers. This control may mean a firm where every worker-owner participates in decision-making in a democratic fashion, or it may refer to one in which management is elected b ...
s or
co-determination In corporate governance, codetermination (also "copartnership" or "worker participation") is a practice where workers of an enterprise have the right to vote for representatives on the board of directors A board of directors (commonly referre ...
, employee share ownership may not confer any meaningful control or influence by employees in governing and managing the corporation. Some companies, particularly private companies, use employee share ownership to support a company's culture. Employee ownership is when all employees together own a substantial stake and have a meaningful voice in the company (or group) that employs them. A number of countries have introduced tax advantaged share or share option plans to encourage employee share ownership.


Types of plan

To facilitate employee stock ownership, companies may allocate their
employee Employment is a relationship between two parties regulating the provision of paid labour services. Usually based on a contract A contract is a legally enforceable agreement between two or more Party (law), parties that creates, define ...
s with
stock In finance, stock (also capital stock) consists of all the Share (finance), shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which owners ...
, 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. For example, in the U.S. there are specific rules for
Employee Stock Ownership Plan 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, Emp ...
s (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

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 plan In the United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, s ...
s 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

Stock options In finance, an option is a contract which conveys to its owner, the ''holder'', the right, but not the obligation, to buy or sell a specific quantity of an underlying asset or financial instrument, instrument at a specified strike price on or be ...
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

Restricted stock Restricted stock, also known as restricted securities, is stock of a company that is not fully transferable (from the stock-issuing company to the person receiving the stock award) until certain conditions (restrictions) have been met. Upon satisfa ...
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

Phantom stock Phantom stock is a contractual agreement between a corporation and recipients of phantom shares that bestow upon the grantee the right to a cash payment at a designated time or in association with a designated event in the future, which payment is ...
pays a future cash bonus equal to the value of a certain number of shares.


Stock appreciation rights

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

Employee ownership is a way of running a business that can work for different sized businesses in diverse sectors. Employee ownership requires employees to own a significant and meaningful stake in their company. 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). There are three basic forms of employee ownership: * 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 An employee trust is a trust for the benefit of employees. The employees that an employee trust benefits are usually defined by reference to employment by a particular company (or group of companies).  In addition to employees, the beneficiaries ...
; 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. 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 Scottish Enterprise is a non-departmental public body In the United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western co ...
, 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 An employee ownership trust (EOT) holds a permanent or long-term shareholding in a company on trust for the benefit of all the company’s employees. An EOT provides indirect (trust) employee ownership of a company. Among the different forms of em ...
. 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 A social enterprise is an organization that applies commercial strategies to maximize improvements in financial, social and environmental well-being. This may include maximizing social impact alongside profits for co-owners. Social enterprises ca ...
movement. A public service mutual, by definition, has a significant degree of employee ownership, influence or control, but most
public service mutual In England, a public service mutual is an organisation that has left the public sector but continues delivering public services. There is a significant degree of employee ownership, influence or control in the way the organisation is run. Central ...
s identify themselves as social enterprises rather than employee owned. A
worker cooperative A worker cooperative is a cooperative owned and self-managed by its workers. This control may mean a firm where every worker-owner participates in decision-making in a democratic fashion, or it may refer to one in which management is elected b ...
is a
cooperative A cooperative (also known as co-operative, co-op, or coop) is "an autonomy, autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratical ...
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. The most celebrated (and studied) case of a group of companies based wholly on co-operative principles is the Spanish
Mondragon Cooperative Corporation The Mondragon Corporation is a corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state to act as a single entity (a legal entity recognized by private and public la ...
. Spanish law, however, requires that members of the
Mondragon Corporation The Mondragon Corporation is a corporation and cooperative federation, federation of worker cooperatives based in the Euskal Herria, Basque region of Spain. It was founded in the town of Mondragón, Mondragon in 1956 by José María Arizmendia ...
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).


By country


Baltic states

The
Baltic states The Baltic states, et, Balti riigid or the Baltic countries is a geopolitical term, which currently is used to group three countries: Estonia Estonia, formally the Republic of Estonia, is a country by the Baltic Sea in Northern Euro ...
do not provide detailed rules on employee financial participation except for some supported schemes. However, comparisons across the national regulations on employee financial participation schemes showed little density. In other words, there were few laws related mostly to employee ownership plans and no special legislation on profit sharing. The Baltic states use the same type of employee ownership plans. In practice, several employee ownership plans are offered to employees or can be purchased from
Lithuania Lithuania (; lt, Lietuva ), officially the Republic of Lithuania ( lt, Lietuvos Respublika, links=no ), is a country in the Baltic region of Europe. It is one of three Baltic states and lies on the eastern shore of the Baltic Sea. Lithuania ...
n stock exchange markets, including action shares (in a public limited liability company), stock options and non-vested shares. The main problems are related to eligibility of stock options by employees. Another problem is related to the lack (
Estonia Estonia, formally the Republic of Estonia, is a country by the Baltic Sea in Northern Europe, Northern Europe. It is bordered to the north by the Gulf of Finland across from Finland, to the west by the Baltic Sea, sea across from Sweden, to ...
n case) of special legal schemes (the regulation for employee stock options or anotheran), legal loopholes (outdated regulation, restriction for initiations of stock option plans) or unspecified eligibility criteria for shares.


United Kingdom

Employee Share Ownership Plans (ESOPs) became widespread for a short period in the UK under the government of
Margaret Thatcher Margaret Hilda Thatcher, Baroness Thatcher (; 13 October 19258 April 2013) was Prime Minister of the United Kingdom from 1979 to 1990 and Leader of the Conservative Party (UK), Leader of the Conservative Party from 1975 to 1990. S ...
, 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. The disappearance of stock plans was dramatic.


United States

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 Whole Foods Market IP, Inc., a subsidiary of Amazon (company), Amazon, is an upscale American multinational supermarket chain store, chain headquartered in Austin, Texas, which sells products free from hydrogenated fats and artificial colors, fla ...
and
Starbucks Starbucks Corporation is an American multinational List of coffeehouse chains, chain of coffeehouses and Starbucks Reserve, roastery reserves headquartered in Seattle, Seattle, Washington. It is the List of coffeehouse chains, world's larges ...
. In his
2020 2020 was heavily defined by the COVID-19 pandemic, which led to global Social impact of the COVID-19 pandemic, social and Economic impact of the COVID-19 pandemic, economic disruption, mass cancellations and postponements of events, COVID- ...
Presidential campaign,
Bernie Sanders Bernard Sanders (born September8, 1941) is an American politician who has served as the Seniority in the United States Senate, junior United States Senate, United States senator from Vermont since 2007. He was the U.S. representative for t ...
proposed that 20% of stocks in corporations with over $100 million in annual revenue be owned by the corporation's workers.


See also

* Center on Business and Poverty *
Co-determination In corporate governance, codetermination (also "copartnership" or "worker participation") is a practice where workers of an enterprise have the right to vote for representatives on the board of directors A board of directors (commonly referre ...
** Worker representation on corporate boards of directors *
Cooperative A cooperative (also known as co-operative, co-op, or coop) is "an autonomy, autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratical ...
*
Worker cooperative A worker cooperative is a cooperative owned and self-managed by its workers. This control may mean a firm where every worker-owner participates in decision-making in a democratic fashion, or it may refer to one in which management is elected b ...
* Economics of participation * Employee benefit trust *
Labour law Labour laws (also known as labor laws or employment laws) are those that mediate the relationship between workers, employing entities, trade unions, and the government. Collective labour law relates to the tripartite relationship between employee, ...
*
List of employee-owned companies This is a list of notable employee-owned companies by country. These are companies totally or significantly owned (directly or indirectly) by their employee Employment is a relationship between two parties regulating the provision of paid ...
*
Market socialism Market socialism is a type of economic system An economic system, or economic order, is a system of Production (economics), production, resource allocation and Distribution (economics), distribution of goods and services within a society o ...
*
Social ownership Social ownership is the appropriation of the surplus product, produced by the means of production, or the wealth that comes from it, to society as a whole. It is the defining characteristic of a socialist economic system. It can take the for ...


References


Further reading

* * * Curl, John (2009) ''For All The People: Uncovering the Hidden History of Cooperation, Cooperative Movements, and Communalism in America'', PM Press, * {{DEFAULTSORT:Employee Ownership Types of business entity