European Federation of Employee Share Ownership has adopted the proposal by two members of the Institute for Economic Democracy, David P. Ellerman and Tej Gonza, as the generic and democratic form of European Employee Stock Ownership Plan or ESOP. We are proud to share the proposal in its conceptual and technical details with you here. Click on the picture above for the pdf version of the document or visit EFES website to download it here.
Employee share ownership in SMEs is microscopic in Europe while it is widespread in the USA. This difference is due to the implementation of a particular employee share plan in 1974 in the USA, the ESOP. We can put in parallel the 14 million employee owners in companies under ESOPs in the USA and the figure of 1 to 1.5 million in SMEs in Europe. For employees, for companies, for well-being in general, this is very much lacking in Europe.
When the EFES wrote its “political roadmap for employee share ownership in Europe” in 2008, we put the introduction of the ESOP model in Europe among our priorities. Today, with the crisis due to the pandemic, the time has probably come to push it to the forefront. Indeed, many companies risk bankruptcy, public interventions are increasing, even nationalizations are back on the agenda. In this context, employee share ownership must be part of the panoply, it can be an important factor for the success of the turnaround.
The following proposal describes the characteristics of a generic European ESOP model. On this basis, a specific approach will have to be adopted in each European country according to its specific legal and tax aspects.
The authors are David Ellerman, a former World Bank economist and an American living in Slovenia today, one of the few people recognized worldwide for their expertise about employee share ownership, – and Tej Gonza, President of the Institute for Economic Democracy, Ljubljana, Slovenia.
The proposal first describes the American ESOP model as it could be implemented in Europe as well. In this version, it is a pension plan, therefore a long-term employee share ownership plan. This also provides him with a very clever financing model, based on an original tax scheme. These characteristics are probably those which allow this ESOP model to surpass all other employee share ownership formulas in SMEs.
However, particular obstacles could appear in Europe. Hence two variants proposed compared to the American ESOP model:
– In the Coop-ESOP, the legal vehicle for the plan could be a workers cooperative rather than a trust. Authors of the proposal are fervent promoters of the “one-person-one-vote” principle; others may prefer the “one-share-one-vote” rule.
– Instead of a pension plan as it is the case in the USA, it could be a “rollover” plan.
Foreword by Marc Mathieu, Secretary General EFES