(This article originally appeared in Ambition, the thought leadership publication by the Association of MBAs (AMBA) – in print and online – and has been republished on this website with the permission of AMBA.)
Employee share ownership, where staff own shares in the company that they work for, can enhance corporate performance, as well as help employees become more committed and motivated. This article sets out an in-depth analysis of the scheme’s benefits.
Despite the global progress achieved with the United Nations’ 2030 agenda for sustainable development and its 17 sustainable development goals (SDGs), it remains clear that there is still much to be done. Challenges such as inequality, environmental issues arising from climate change and biodiversity loss, lack of political will and the insufficiency of adequate financial resources – further affected by the post-pandemic climate – have hindered progress to achieve the SDGs. A renewed commitment across all sectors will be the turning point in addressing these challenges, while accelerating the path towards a more just, prosperous and sustainable world for all. Part of the many actions contributing to the UN’s goals is including and involving society in decision-making processes. Translating this perspective into the business realm, the employee share ownership model offers various benefits with social implications that are subject to analysis.
A glimpse into the future
According to the Organisation for Economic Co-operation and Development (OECD), it is estimated that in the next 10 years around 10 million small and medium-sized enterprises (SMEs) worldwide will face the need for leadership change due to current owners retiring. In the United States, the Family Business Institute of the University of St Thomas reported that around 60 per cent of family businesses do not have a solid succession plan. This trend is echoed in countries such as Mexico, France and Slovenia. The
challenge of succession is exacerbated by the ageing business population, particularly in the US and Europe, where it is estimated that more than half of business owners are over 50 years old.
As SMEs represent a significant part of economic activity and job generation, the lack of effective succession can have a significant impact on the economy. The challenge involves careful planning by business owners, as well as the design of policies and government support programmes that promote business continuity and the successful transfer of assets, knowledge and legacy purposes.
The Employee Stock Ownership Plan (ESOP) allows company employees to acquire a stake in the company’s ownership, enabling them to share decision-making power and financial benefits collectively. It gives staff a voice while fostering a sense of belonging and long-term motivation. For founders and owners, employee participation in capital offers a succession-planning tool and a way to improve productivity, innovation and resilience within the company while impacting all stakeholders. Democratic business governance aligns workers’ interests with the success of their companies and promotes genuine motivation, engagement in business success and purpose in job performance. This model facilitates an innovative mindset and allows workers to take responsibility for the result of their work, leading to greater accountability while providing a higher degree of participation in the decisions that affect their lives. At the same time, wealth is shared equitably among all stakeholders.
Championing co-operative businesses
The US leads the list of countries with the largest number of companies successfully following the ESOP model, with some 6,447 firms employing 10.1 million workers nationwide and covering 10 per cent of private sector employees. Large companies such as Publix Supermarkets, WinCo Foods and Amsted Industries all appear on the list; however, most companies under this model are SMEs. In the UK, the most renowned employee-owned company is the John Lewis Partnership; following the introduction of tax incentives through legislation on employee-owned trusts that came into force in 2014, nearly 2,000 new companies have been created in the country under this model.
Thousands of co-operatives that provide stable jobs and maintain the value of local communities can be counted in countries such as Germany, Italy, France and Spain; the latter is home to Mondragon Co-operative Group, the largest of its kind in the world. The co-operative model can now be found in Argentina, Chile, Peru, Mexico, India, Morocco and Japan, all places where ESOPs have contributed to ensuring material well-being and economic stability. According to the International Cooperative Alliance (ICA), there are more than three million co-operatives in operation, totalling 12 per cent of the world’s population. In 2024, the government of Canada announced its support for employee share ownership and Slovenia is preparing a law on ESOP, while in Mexico, work is being done on a public policy proposal that could eventually apply to the entire Latin America region.
What we have learned so far is that share ownership thrives best where legislation supports it; even when there is still much to be done, the global landscape is evolving and employee share ownership is becoming a reliable strategy for achieving sustainable economic development. Imagine a workplace where every voice matters, decisions are made collectively, employees’ economic interests are aligned with the company’s success and the sense of ownership fuels innovation. Employee-owned companies are a reality worldwide and ESOPs are part of a future where empowerment, equity and prosperity are not just aspirations, but intertwined realities in the fabric of the economic landscape.
A mutually beneficial arrangement
This business approach represents, on the employee’s part, the opportunity to participate in the company’s financial success – a powerful incentive that raises morale and commitment. Furthermore, by becoming partial company owners, employees can contribute to decision-making and experience a greater sense of ownership and responsibility towards the company. Moreover, the ESOP model can be an effective strategy for the company to encourage talent retention, improve productivity and increase employee loyalty. This new commitment on behalf of the workers adds to their efforts towards the company’s success, resulting in greater operational efficiency and a more substantial work culture. Tax breaks are also part of the benefits.
Several studies, primarily conducted in the US, including research by the National Centre for Employee Ownership (NCEO) and the Institute for the Study of Employee Ownership and Profit Sharing at Rutgers University, reveal that companies implementing these plans witness substantial enhancements. These include a marked reduction in staff turnover and absenteeism. The correlation between stock-based compensation and a company’s financial performance stimulates a positive dynamism in productivity and nurtures a more profound sense of employee commitment.
Moreover, share ownership positively impacts the work environment and serves as a mechanism for long-term savings for employees. These plans strengthen individual financial stability and contribute to workers’ professional and personal development when combined with educational programmes.
A transformative impact
At the heart of prosperous economies lie empowered individuals and – behind them –visionary organisations. Employee share ownership, accompanied by a strong culture of ownership in the workplace, constitutes a competitive advantage for companies in the market: it provides greater stability during recessions and helps attract and retain talented individuals. Furthermore, this participation model can be an effective policy strategy for achieving social responsibility goals.
The results of numerous empirical research studies worldwide are revealing. ESOP companies in the US have demonstrated significantly higher productivity and return on equity compared to other companies, at 24 and 92.3 per cent, respectively. Participatory ESOP companies have also experienced a spectacular growth rate, equivalent, on average, to as much as 3.4 per cent faster than conventional companies. These results are magnified when combined with a culture of ownership; it appears that ESOP companies provide financial security and improve overall quality of life.
They also demonstrate astonishing stability during crisis periods; during the Great Recession, ESOP companies were three times more successful in loan repayment than comparable organisations. During the Covid-19 pandemic, they experienced a layoff rate that was four times lower than conventional companies and outperformed their counterparts in talent retention. Additionally, they presented an impressive employee turnover rate that was 50 per cent lower than that experienced by traditional companies during the calendar year of 2019.
In the current scenario, as per reports from the Institute for the Study of Employee Ownership and Profit Sharing issued last year, ESOP companies possess a combined wealth of $1.8 trillion earmarked for their employees, equating to an impressive average of $180,000 for each of the 10 million workers. Furthermore, ESOPs are known for offering salaries that are 33 per cent higher than the industry average, providing employees with financial stability and empowerment.
ESOPs also eliminate gender, race and social class differences, offering a path to advancement for low and moderate-income workers. On average, their employees have ten times more wealth before retirement than in conventional companies. Employee share ownership can reduce inequality and open the door to economic progress; if 30 per cent of all US companies were employee-owned, 50 per cent of workers with lower incomes would have six times more wealth. These firms are not only employers but also cornerstones of local economies, providing stability, investment and growth.
Finally, it is worth mentioning those efforts led in Mexico by Iteso, the Jesuit University of Guadalajara, in collaboration with other European and Latin American universities through an initiative focused on employee share ownership. This initiative, co-financed by the European Union’s Adelante 2 triangular cooperation programme, has significantly impacted current professors and students in its MBA curriculum and seeks to promote employee share ownership to contribute to the realisation of the UN SDGs in Mexico. This alliance highlights the importance of collective government actions in Mexico and Peru to achieve sustainable development, as well as the role of employee ownership in generating value in both the business and social arenas. It is clear, then, that promoting shared ownership as a business practice can build a more equitable and sustainable society.
