Employee Share Ownership Plan

An employee stock ownership plan (ESOP) is an employee-owner program that provides a company's workforce with an ownership interest in the company. In an ESOP, companies provide their employees with ownership, often at no upfront cost to the employees. ESOP shares, however, are part of employees' remuneration for work performed. Shares are allocated to employees and may be held in an ESOP trust until the employee retires or leaves the company. The shares are then either bought back by the company for redistribution or voided.

Some corporations are majority employee-owned; the term "employee-owned corporation" often refers to such companies. Such organizations are similar to worker cooperatives, but unlike cooperatives, control of the company's capital is not necessarily evenly distributed. In many cases, voting rights are given only to certain shareholders, and more senior employees may be allocated more shares than new hires; typically, they are tied to the compensation an employee receives from the company. Compared with cooperatives, ESOP-centered corporations often allow for company executives to have greater flexibility and control in governing and managing the corporation.

Most corporations, however, use stock ownership plans as a form of in-kind benefit as a way to prevent hostile takeovers or to maintain a specific corporate culture. The plans generally prevent average employees from holding too much of the company's stock.

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. The disappearance of stock plans was dramatic.

The John Lewis Partnership has been cited as an example of an employee share ownership. However, unlike some other employee ownership arrangements, partners in John Lewis have no proprietary right to their stake and cannot buy or sell their rights or collectively dissolve the entity. ESOPs are almost entirely opposite because at John Lewis, employees get a voice at work but cannot trade an ownership stake; an ESOP typically carries no meaningful voice but allows the interest to be bought and sold.

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