Employee stock ownership plan

Employee stock ownership, or employee share ownership, is an ownership interest in a company held by the company's workforce. The ownership interest may be facilitated by the company as part of employees' remuneration or incentive compensation for work performed, or the company itself may be employee owned. Employee stock ownership, or employee share ownership, is an ownership interest in a company held by the company's workforce. The ownership interest may be facilitated by the company as part of employees' remuneration or incentive compensation for work performed, or the company itself may be employee owned. 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. Most corporations, however, use stock ownership plans as a form of employee benefit, to maintain a specific corporate culture, or as a way to prevent hostile takeovers. The plans generally prevent average employees from holding too much of the company's stock. Compared with cooperatives therefore, employee share ownership may not confer any meaningful control, or allow for company executives to have flexibility and control in governing and managing the corporation. To facilitate employee stock ownership, companies may allocate their employees with stock, which may be at no upfront cost to the employee, or enable the employee to purchase stock, which may be at a discount or through a tax-efficient scheme. Shares allocated to employees may have a holding period before they vest to the employee. Various types of employee stock ownership plans are common in most industrial and some developing countries. In the United States there is a widespread practice of sharing this kind of ownership broadly with employees. The tax rules for employee 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 ownership. For example, in the U.S. there are specific rules for Employee Stock Ownership Plans (ESOPs). In India, employee stock option plans are called 'ESOPs”. The most celebrated (and studied) case of a multinational corporation based wholly on worker-ownership principles is the Spanish company Mondragon Cooperative Corporation. Unlike in the United States, however, Spanish law requires that members of the Mondragon Corporation are registered as self-employed. This differentiates 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 Benefit Trust, or company rules embed mechanisms for distributing shares to employees and ensuring they remain majority shareholders). Different forms of employee ownership, and the principles that underlie them, are strongly associated with the emergence of an international social enterprise movement. Key agents of employee ownership, such as Co-operatives UK and the Employee Ownership Association (EOA), play an active role in promoting employee ownership as a de facto standard for the development of social enterprises.