A new NCEO paper, Expanding Employee Ownership: Models in the US, UK, France, Canada, and Slovenia (PDF; also see the embedded version below), explores the five leading models for trust-based employee ownership. Research and experience show that holding employee ownership in a trust, rather than individually owning shares, tends to be the most sustainable form of employee ownership. Companies generally need tax or other incentives to create and fund the plans for employee ownership to grow. Also, employee ownership is more likely to be widely adopted in forms that are funded in whole or in part by the company, rather than just by employees. These five models are the only legislatively supported models that combine all these features.
Each of the five countries uses a different approach, although there are many similarities. The US employee stock ownership plan (ESOP) is part of retirement plan law and provides employees with substantial tax incentives to sell stock to an ESOP funded by the company. Employees accumulate an equity interest in the company and cash in their accounts after terminating employment. In the UK, employee ownership trusts (EOTs) do not provide employees with an equity stake; instead, the EOT holds the shares permanently while the company shares profits or dividends with employees. The UK offers a tax exclusion for sales to qualifying EOTs. Canadian EOTs are similar to those in the UK and also receive tax incentives, but companies can optionally incorporate equity claims for employees.
The French and Slovenian models allow employee investments in the trust but are primarily funded by the employer. While the US, UK, and Canadian models are used primarily by closely held companies for business transition, the French model generally provides minority ownership for employees in larger companies and often is part of the required profit-sharing contribution for companies with more than 50 employees. The Slovenian model combines elements of worker cooperatives, EOTs, and ESOPs, emphasizing employee governance rights more strongly than any of the other models.
The paper was authored by NCEO founder Corey Rosen; Graeme Nuttall, the international ambassador for the UK Employee Ownership Association and the author of the Nuttall Report, which led to the UK’s EOT legislation; Jon Shell, the chair of Social Capital Partners in Canda; Thibault Mirabel, the head of research at Equalis Capital and vice-chair of Capital Collectif in France; and Tej Gonza, the cofounder and director of the Inštitut za ekonomsko demokracijo (IED) in Slovenia.