Employee stock ownership
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Employee stock ownership, or employee share ownership, is where a
Most corporations use stock ownership plans as a form of an
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
To facilitate employee stock ownership, companies may allocate their
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
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
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
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
Phantom stock 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.[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
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
By country
United Kingdom
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
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 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
References
- ^ "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.
- 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.
- S2CID 154299458.
- ISSN 1468-2338.
- ^ "Corporate Accountability and Democracy".
Further reading
- 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, OCLC 50479205
- Rosen, Corey; Case, John; Staubus, Martin (2005), Equity: Why Employee Ownership is Good for Business, Boston, Mass.: Harvard Business School Press, 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