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 go ...
'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'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. Plans in
public companies A public company is a company whose ownership is organized via shares of stock which are intended to be freely traded on a stock exchange or in over-the-counter markets. A public (publicly traded) company can be listed on a stock exchange (li ...
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 cooperatives 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 in a company. It also refers to staff having ...
, 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 employees 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, Em ...
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 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 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 instrument at a specified strike price on or before a specified da ...
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. 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; 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 of the Scottish Government which encourages economic development, enterprise, innovation and investment in business. The body covers the eastern and central parts of Scotland whilst simi ...
, Wales Co-operative Centre and
Co-operatives UK Co-operatives UK is a British co-operative federation described as "the central membership organisation for co-operative enterprise throughout the UK". It was founded in 1870 as the Co-operative Central Board, changing its name to the Co-ope ...
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 employees. 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. 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).

By country

Baltic states

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, Latvia, and Lithuania. All three countries are members of NATO, the European Union, the Eurozone, ...
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 from 1975 to 1990. She was the first female British prime ...
, 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, is an upscale American multinational supermarket chain headquartered in Austin, Texas, which sells products free from hydrogenated fats and artificial colors, flavors, and preservatives. A USD ...
Starbucks Starbucks Corporation is an American multinational chain of coffeehouses and roastery reserves headquartered in Seattle, Washington. It is the world's largest coffeehouse chain. As of November 2021, the company had 33,833 stores in 80 co ...
. 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.

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 in a company. It also refers to staff having ...
** Worker representation on corporate boards of directors * Cooperative * Worker cooperative * 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 * Market socialism * Social ownership


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