Employee Stock Ownership Plans (ESOPs)

Often, when people discuss “employee ownership,” they are talking about employee stock ownership plans, or ESOPs. An ESOP is a type of employee benefit plan. In an ESOP, a company sets up a trust fund, into which it contributes new shares of its own stock. Shares in the trust are then allocated to individual employee accounts. As employees accumulate seniority with the company, they acquire an increasing right to the shares in their account. This process is called “vesting.” When a employee leaves the company, she receives her stock, which the company must then buy back from her at its fair market value.

The National Center for Employee Ownership is a great resource on ESOPs.

Here are a few articles to learn more ESOPs and how they are similar to and different from cooperatives:

1. How an Employee Stock Ownership Plan (ESOP) Works

   1. This resource provides a brief overview of employee stock ownership plans (ESOPs), including the rules associated with them, their major uses, their tax benefits, and more.

2. Murphy, Michael E. “The ESOP at Thirty: A Democratic Perspective, The.” Willamette L. Rev. 41 (2005): 655.

   1. This resource provides a historical overview of employee stock ownership generally in the United States, as well as specific information about the creation and codification in federal law of the employee stock ownership plan (ESOP). The article discusses how the political leanings and economic beliefs of the individuals involved in creating the ESOP influenced its structure, particularly as it relates to democratic decision-making. The article further provides an update on the role that the ESOP plays in the shared ownership landscape today.

3. Ellerman, David P. (1985) “ESOPs & CO-OPs: Worker Capitalism & Worker Democracy,” Labor Research Review: Vol. 1: No. 6, Article 5.  

   1. This resource provides a comparison between ESOPs and worker cooperatives as the two primary forms of worker ownership in the United States, with an emphasis on the rights each affords workers. Ellerman frames the discussion through what he contends are the three primary rights of business ownership: (1) voting rights (2) rights to profits or net income, and (3) rights to net book value of the corporate assets. He argues that ESOPs are typically used as a form of “second-class ownership without control,” but that they can (with some legal ambiguity) be structured more democratically as well.

4. Hansmann, Henry. “When does worker ownership work? ESOPs, law firms, codetermination, and economic democracy.” Yale Law Journal (1990): 1749-1816.

   1. This resources provides an in-depth look at the landscape of worker ownership in the United States and a discussion about the benefits and challenges that worker-owned firms face. The author argues that current analyses of worker ownership under-emphasize the potential benefits of worker ownership in increasing firm efficiencies. However, he finds that the industries where worker ownership is currently concentrated are not the industries where it would create these greater efficiencies. Furthermore, the author contends that while the most frequently discussed challenges with the worker ownership model are overstated, there is an underemphasized cost associated with worker ownership, namely collective worker governance.