ESOP

ESOP

UK Labour Party Develops Employee Ownership Proposal: Why Can’t US Labor Unions Do the Same?

 

The Employee Ownership Update

By Loren Rodgers

September 17, 2018

(Loren Rodgers)

UK Labor Party Develops Employee Ownership Proposals

The UK Labour Party’s shadow chancellor John McDonnell unveiled a plan to dramatically increase employee ownership in the United Kingdom by setting up “ownership funds” in all companies with 250 or more employees. McDonnell said, “What this will ensure is that in large companies, in addition to rewarding workers with wages, they will reward them with shares that will go into a pool that will allow them to have an ownership role.” Although the mechanisms are still up for discussion, possibilities include companies putting a percentage of profits into a fund to put company shares in a trust on behalf of employees.

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If you have a pension plan and would like to fund your business through your pension plan, then read about Employee Stock Option Plan (ESOP) below.

Employee Stock Option Plan (ESOPs)

Here is a guide to Employee Ownership, courtesy of the National Center for Employee Ownership

How ESOPs Work

There are several ways through which employees can become the owners of their company, but the ESOP is the main source of employee ownership in the U.S. This is how it works.

In the U.S., the main form of ongoing employee ownership is the employee stock ownership plan (ESOP). An ESOP is a type of employee benefit plan that acquires company stock and holds it in accounts for employees. Many people have misconceptions about ESOPs, thinking, for example, that employees buy the stock or that an ESOP works like an equity compensation plan. The illustration below shows how an ESOP works in a typical case, where it is used to buy out the owner. There also are many ESOPs in public companies, where they often are a component of a 401(k) plan and a minor component of overall ownership, but the explanation here shows an ESOP in its most characteristic form.