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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'
/ref> 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. Plans in Public company generally limit the total number or the percentage of the company's stock that may be acquired by employees under a plan.See, for example, in the UK, The Investment Association Principles of Remuneration (1 November 2019) Rule 2 xi (Dilution) 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.
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.National Center for Employee Ownership, Employee Ownership for Multinational Companies, 2010 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:
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 Employee trust). There are three basic forms of employee ownership: (1987). 9781851900336, Fourmat. ISBN 9781851900336
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, 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 Employee
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.
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. The most celebrated (and studied) case of a group of companies based wholly on co-operative principles is the Spanish Mondragon Cooperative Corporation.Whyte, W. F. and Whyte, K. K. (1991) Making Mondragon, New York: ILR Press/Itchaca. 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).Erdal, D. (2008) Local Heroes: How Loch Fyne Oysters Embraced Employee Ownership and Business Success, London: Viking.
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.
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