Inštitut za ekonomsko demokracijo

Three branches of employee ownership

European Federation of Employee Share Ownership

We need to be clear in Europe that employee share ownership is not a single model – in fact there are three main models of employee share plans.

1) Employee Share Purchase Plans (ESPPs). In this model, employees buy shares of the company they work for, usually at a discounted price. ESPPs are the most effective plans for large listed companies.

2) Stock Options, which are the most effective plans for startups.

3) The ESOP model. It is something completely different from the first two models and it is the most effective employee share plan for SMEs. In this model, employees become the collective owner of the company they work for. For this, they don’t have to use their own resources or savings. The funding usually comes from external sources, typically banks (as in a leveraged buyout) or other sources as in the context of the corona crisis. The first beneficiaries of the ESOPs are thus not employees but companies.

In the USA, this is a significant way of funding the whole economy. The ESOP model can help companies to tackle liquidity problems and bankruptcies, where employees will the ultimate beneficiaries – this is why it is an “employee” share plan. Let’s have a look at Europe as regards these three different models.

1) ESPPs are well known in Europe: Several European countries have been promoting these schemes for a long time and successfully so. They are mainly intended for the some 10 000 European listed companies, employing 36 million employees or 25% of employees in European private companies.

2) Stock options. The European Commission has just decided to launch a new strategy to encourage employee stock options for startups. Undoubtedly a significant step forward. It is focused on the some 18.250 European startups, employing some tens of thousands employees or 0.1% of all employees in private companies.

3) ESOPs. This model is essentially aimed at SMEs (and large non-listed companies). We calculate there are 1.7 million SMEs in Europe employing 54 million persons or 37% of employees in private companies, – and even 67 million or 46% if we include large non-listed companies.

Still today, employee share ownership in European SMEs is virtually unknown. It has been highly successful for 45 years in the USA and so the model for it already exists – the ESOP. European SMEs are missing out badly, and it could be a major tool to help tackle the crisis. The European Commission has made good progress on stock options for startups. We urge to make similar efforts for ESOPs in SMEs. The numbers involved are many time greater. More information

EFES Newsletter June 2020



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