Although the United States has a rich history of allowing and encouraging employee ownership, our nation is not the only one in the world with laws that enable and govern employee ownership of companies.
Even the former USSR countries have gotten into the action and formed employee ownership privatization plans. Not to be outdone, socialist China has followed suit and has put together some options regarding employee ownership as well.
According to the 2009 PEPPER IV Report that focused on employee ownership in twenty-seven Eurogroup states and two candidate countries, the movement toward employee ownership is on the rise in Europe.
The UK is a different story. For reasons that are not entirely clear, employee ownership hasn’t caught on in the UK like it has in the USA and in the expanding economies of China and Southern Africa.
The Two Main Employee Ownership Models at Play on the Global Stage
When one moves beyond privatization plans, there are basically two models functioning across the world today.
- Employee Stock Purchase Plans
- Free Share Plans
These two models fall short of the ESOP advantages found here in the USA and as a result, in the vast majority of employee ownership plans worldwide, the employees own only a small portion (less than 10%) of the shares in a company.
Because these more basic models do not have the functionality that share pooling in a USA ESOP trust has. The result is that employees – even if they do have a share purchase option – will not buy shares because they don’t have the cashflow to do so. Still, some employees do choose to participate. But because employee shares are not in a trust where they accumulate in value until their departure the employees are more likely to buy and sell them at a higher frequency. This cycle of share purchase and sale ends up not being as beneficial for the employees because they do not gain the benefit of being invested over the long term.
Given this low employee participation rate and high stock turnover, the countries that do have laws encouraging employee ownership do not see their companies largely benefit from the ESOP trends we see here in the USA such as:
- Pride of Ownership
- Employee Role in Workflow Decisions
- Productivity Enhancements
- Improved Leadership/Employee Relationship
If countries globally desire to see employee ownership takeoff and be effective, they cannot depend on employees to take from their take-home pay to buy shares – even if the company puts up some matching funds or incentives for them to do so. Instead, foreign countries must focus on creating strategies in which it is advantageous for companies to allow pool ownership of shares.
France leads Europe in innovation when it comes to broad-based employee ownership. In their model, the company backs a bank loan for the employees to buy their shares. When combined with discounts and little to no risk for the employees, this option is very popular and a model for other European countries to copy.
What countries in the world have some form of legislation that encourages or at least governs employee ownership?
- New Zealand
- United Kingdom
- South Africa
- Czech Republic
While each of these countries has their own “take” on how employee ownership should be implemented, formatted, maintained, and governed, it is encouraging to see that nations are recognizing the legitimacy of employee ownership programs.
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