An employee shareholding plan ( ESOP ) is an employee-ownership program that provides the company's workforce with ownership in the company. In ESOP, companies provide their employees with shareholding, often without upfront costs to employees. The ESOP shares, however, are part of the employee remuneration for the work performed. Shares are allocated to employees and can be kept in ESOP trust until employees retire or leave the company. The shares are then bought back by the company for redistribution or canceled.
Some companies belong to the majority of employees; the term "employee-owned enterprise" often refers to such a company. Such an organization is similar to a worker's cooperative, but unlike a cooperative, control over a company's capital does not need to be distributed evenly. In many cases, the voting rights are only granted to certain shareholders, and more senior employees may allocate more shares than new employees; usually, they are tied to the compensation that employees receive from the company. Compared to cooperatives, ESOP-centered companies often allow corporate executives to have greater flexibility and control over managing and managing companies.
However, most companies use stock ownership plans as a form of benefit in the form of goods, as a way to prevent a hostile takeover, or to preserve a particular corporate culture. The plan generally prevents the average employee holding too many shares of the company.
Video Employee stock ownership plan
United Kingdom
The ESOP became widespread for a short time in the UK under the rule of Margaret Thatcher, especially after the Transportation Act of 1985, which deregulated and then privatized the bus services. Councils that seek to protect workers ensure that employees access stock when privatization takes place, but employee owners immediately lose their shares when they are bought and the bus company is taken over. The loss of inventory plan is very dramatic.
The John Lewis partnership has been cited as an example of employee share ownership. However, unlike some other employee ownership arrangements, partners in John Lewis have no ownership interest in their shares and can not buy or sell their rights or collectively dismiss the entity. ESOP is almost completely opposite because in John Lewis, employees get votes at work but can not trade ownership shares; an ESOP usually does not carry a meaningful sound but allows an interest to be bought and sold.
In July 2012, the Department of Innovation and Business Skills published the report, "Profit, Benefit, and Consequences of Employee Ownership". The report notes some of the key benefits of employee ownership including a stronger longer-term focus, improved employee representation at board level and greater preference for internal growth. The report also highlights that employee-owned businesses face greater problems when it comes to raising capital and dealing with regulatory requirements. The study is based on data from a survey of 41 employee-owned businesses and 22 non-employee businesses in the UK, and also refers to published financial data from 49 EOB and 204 non-EOBs in the UK.
Chancellor of the Exchequer George Osborne announced in a speech at the Conservative Party Conference on Oct. 8, 2012 that the law would be reformed to create a new employment status for "owner-employee". The worker-owner will not pay any capital gains tax on any profits resulting from the sale of these shares, but they must surrender certain labor rights in return, including dismissal and unfair dismissal. Consultations by the Department of Business, Innovation and Skills are published on October 18, 2012. Lawyers have suggested that employee-employee schemes can have significant undesirable consequences such as, under existing proposals, it is possible for employers to organize themselves as employee owners for avoiding capital gains taxes. In practice, the entrepreneurs will be far more 'owners' than 'employees' and the employment rights they will provide will be far more valuable to them than to ordinary employees and thus tax advantages will be of greater value to them than ordinary employees.
On 3 December 2012, the government published its response to the consultation. It has decided to go ahead with the change even though 92% of the responses to the consultation were either "negative" or "mixed" and although it was "widely mocked both in the House of Lords and in business rooms across the country". The term "employee owner" is rejected in favor of a more accurate "employee shareholder". Lawyers have commented that uncertainty remains about how this proposal will operate in practice.
In April 2013, the Bill on Corporate Reform and Regulations was adopted and received Royal Assent. Implementation of the employee-shareholder provisions is expected to occur in October 2013. The terms of employee ownership receive significant amendments in the House of Lords, with undesirable consequences may be that unions can now benefit.
By the end of June 2013, it became clear Osborne's "pet project", has become the center of the Conservative Party conference speech in 2012, has failed after it emerged that only four companies were asking about its share-for-rights scheme, while only two had gone further far to ask for information about it; The chancellor has been expecting thousands of companies to actually register. A British official commented that, it was "a very low figure," and even the Tory-tilt press describes the failed idea as "Osborne at its worst".
Maps Employee stock ownership plan
Baltic States
The Baltic states do not provide detailed rules on employee financial participation except for some supported schemes. However, comparisons across national regulations on employee financial participation schemes show little density. In other words, there are several laws relating primarily to employee ownership plans and no special law on profit-sharing. The Baltic States use the same type of employee ownership plan. In practice, some employee ownership plans are offered to employees or may be purchased from the Lithuanian stock exchange, including action shares (in public limited companies), stock options and non-vested shares. The main problem relates to the feasibility of stock options by employees. Other issues relate to the lack of (Estonian case) specific legal schemes (regulations for employee stock options or otheran), legal loophole (outdated regulations, restrictions for stock option initiation) or unspecified eligibility criteria for stock
United States
Employee shareholding plan is a defined contribution plan, a form of retirement plan as defined by 4975 (e) (7) IRS code, which became a qualified retirement plan in 1974. This is one of the methods of employee participation in the company of ownership.
ESOP is governed by the Employees Retirement Income Act (ERISA), a federal law that sets minimum standards for investment plans in private industry. The Internal Revenue Code Section 404 (a) (3) sets the annual limit on the amount of the deductible contribution that a company may make to a taxpayer share bonus or a 25% profit-sharing plan of compensation paid or accrued during the year to an employee who benefits under the plan.
California, a California-based think tank, the National Center for Employee Ownership estimates there are about 11,300 employee shareholding plans for more than 13 million employees in the United States. Well-known employee companies in the US include Supermarket supermarket chain, Supermarket, Hy-Vee, McCarthy Building Company, WinCo Foods, environmental consultant, Citadel Environmental Services, Inc., New Belgium Brewery brewery, and Lifetouch photography studio company. Currently, most of the private US companies that operate as ESOP are structured as S ESOP (S ESOP) companies.
History
In the mid-19th century, when the United States turned to industrialized economies, national companies such as Procter & amp; Gamble, Express Rail Agent, Sears & amp; Roebuck, and others recognize that one can work for the company for over 20 years, reach old age and then have no income after they no longer work. The leaders of the 19th century company decided to set aside shares in the company that will be given to employees when they retire.
At the beginning of the 20th century, when the United States imposed income tax on all citizens, one of the biggest debates was about how to treat shares set aside for an employee by his employer under the new US income tax law.
ESOP was developed as a way to encourage capital expansion and economic equality. Many early proponents of the ESOP believe that the viability of capitalism depends on sustainable growth and there is no better way for the economy to grow than by distributing the benefits of that growth to the workforce.
In 1956, Louis Kelso invented the first ESOP, which enables employees of Peninsula Newspapers to purchase the company's founders. The chairman of the Senate Finance Committee, Senator Russell Long, a Democrat from Louisiana, helped develop a tax policy for the ESOP in the 1974 Employee Retirement Employment Act (ERISA), calling it one of his most important achievements of his career. The ESOP also attracted the interest of Republican leaders including Barry Goldwater, Richard Nixon, and Gerald Ford, and Ronald Reagan.
In 2001, the United States Congress passed the Internal Revenue Code 409 (p) section, which effectively required the benefits of the ESOP to be shared equitably by investors and workers. This ensures that the ESOP covers everyone from the receptionist to the CFO.
Like any other deferred compensation plan that meets the tax requirements, the ESOP shall not discriminate in their operations for the sake of high-compensated employees, officers or owners. In the ESOP, the company establishes employee benefits trust funded by donating cash to buy the company's shares or donate the company's shares directly. Alternatively, a company may choose to have the trust of borrowing money to buy stocks (also known as ESOPs with leverage, with companies contributing to plans to enable them to repay loans). In general, almost every employee is full-time with a year or more of services that work at least 20 hours a week in an ESOP.
The United States ESOP model is linked to a unique US system that drives personal retirement savings plans and tax policies that reflect those goals. It makes it difficult compared to other tax codes from other countries.
Company S ESOP
Most US private companies that operate as ESOP are composed as ESOP (S ESOPs) companies. The United States Congress established S ESOPs in 1998, to encourage and expand retirement savings by giving millions more American workers the opportunity to have equity in the companies they work for.
ESOP advocates ESOPs credit by providing retirement assurance, job stability and employee retention, by claimed culture, stability and increased productivity associated with employee ownership. A cross-sectional study of S sub-chapter companies with Employee Stock Ownership Plan shows that the S ESOP company performed better in 2008 compared to non-S ESOP companies, paying their workers' wages higher on average than firms others in the same industry, contribute more to the security of their workers' pensions, and hired workers when the overall US economy is bolted down and non-S employers cut jobs. The academics estimate that the annual contribution to SOPs ESOPs employees amounts to approximately $ 14 billion. Critics say, however, that the study failed to control factors other than the existence of ESOP, such as participatory management strategies, employee education, and pre-ESOP growth trends in individual companies. They maintain that no research indicates that the presence of ESOP itself causes a positive effect for the company or the worker; One study estimates that the net US economic benefits of S ESOP savings, job stability and total productivity of $ 33 billion per year.
A study released in July 2012 found that S companies with private employee shareholding plans added jobs over the past decade faster than the private sector as a whole.
A 2013 study found that in 2010, 2,643 S ESOPs directly employed 470,000 workers and supported an additional 940,000 jobs, paid $ 29 billion in labor income for their own employees, with $ 48 billion in additional income for supported work, and tax revenues which was initiated by $ 11 billion of S ESOP for state and local governments and $ 16 billion for the federal government. In addition, the study found that total output is equivalent to 1.7 percent of US GDP in 2010. $ 93 billion (or 0.6 percent of GDP) came directly from S ESOP, while output in supported industries reached $ 153 billion (or 1.1 percent of GDP).
Profits and disadvantages for employees
In the US ESOP, just as in other forms of eligible pension plans, employees do not pay taxes on contributions until they receive distribution of the plan when they leave the company. They can roll that amount into the IRA, as well as participants in eligible plans. There is no requirement for private companies to provide retirement savings plans for employees.
Several studies have concluded that employee ownership appears to increase production and profitability and increase employee dedication and ownership. ESOP supporters maintain that key variables in securing the claimed benefits are to incorporate ESOPs with high levels of worker involvement in work-level decisions (employee teams, for example). Employee share ownership may increase the employee's financial risk if the company does a bad thing.
ESOPS, by definition, centralizes employee retirement savings in a single company's inventory. Such concentrations contradict the central tenets of modern investment theory, that investors should diversify their investments in many companies, industries, geographical locations, etc. In addition, the ESOP focuses on retirement savings of workers in the shares of the same company in which they depend on their current wages and benefits, such as health insurance, exacerbating the problem of non-diversification. High profile examples illustrate the problem. Employees in companies like Enron and WorldCom lose most of their retirement savings by investing excessively in the company's stock in their 401 (k) plan, but the specialty company does not belong to employees. Enron, Polaroid and United Airlines, all of whom had an ESOP when they went bankrupt, were company C.
Most ESOP companies offer their employees at least one eligible retirement savings program such as 401 (k) in addition to ESOP, which enables greater asset diversification. Studies in Massachusetts, Ohio and Washington State show that on average, employees who participate in the main form of employee ownership have more retirement assets than comparable employees in non-ESOP companies. The most comprehensive study, reporting on all ESOP companies in Washington state, found that pension assets were about three times larger, and the diversified portion of the employee retirement plan was almost equal to total pension assets from comparable employees in the non-ESOP equivalent company. The Washington study, however, shows that ESOP participants still have about 60% of their retirement savings invested in employer stock. Wages in corporate ESOP are also 5-12% higher. National data from Joseph Blasi and Douglas Kruse in Rutgers show that ESOP companies are more successful than comparable companies and, as a result, are more likely to offer additional diversification retirement plans with their ESOP.
Opponents of the ESOP have criticized this pro-ESOP claim and say many studies were conducted or sponsored by the ESOP advocacy organization and criticized the methodology used. Critics argue that pro-ESOP research does not specify that the ESOP produces higher productivity and wages. ESOP supporters agree that ESOP alone can not produce such effects; on the contrary, the ESOP should be combined with employee empowerment through participatory management and other techniques. Critics point out that no study separates the effects of such techniques from the ESOP effects; that is, no studies show that innovative management can not produce the same (claimed) effect without the ESOP.
In some circumstances, an ESOP plan is designed that disproportionately benefits a previously registered employee by adding more shares to the original employee. Newer employees, even in stable and mature ESOP companies may have limited opportunities to participate in the program, as most stocks may have been allocated to long-term employees.
ESOP supporters often maintain that employee ownership in a 401 (k) plan, as opposed to an ESOP, is problematic. Approximately 17% of the total 401 (k) assets are invested in the company's shares, more in the companies offering it as an option (although many are not). Proponents of ESOP recognize that it may be an excessive concentration in plans that are specifically meant for pension security. Instead, they maintain that it may not be a serious matter for ESOP or other options, which they say is meant as a wealth-building tool, should be in addition to other plans. Nonetheless, ESOP is set up as a retirement plan, and they are presented to employees as a retirement plan, just like a 401 (k) plan.
Conflict of interest
Because the ESOP is the only retirement plan that is allowed by law to borrow money, they can become attractive to corporate owners and managers as a company's financial instrument and succession. An ESOP formed using a loan, called an "ESOP with leverage", can provide a tax-advantaged means for a company to raise capital. According to the pro-ESOP organization, at least 75% of ESOPs, or at any one time, are utilized. According to the ESOP Association cited statistics as quoted. In addition, the ESOP can be an attractive instrument of corporate succession, enabling pension shareholders to diversify stock companies while delaying unlimited capital gains tax.
Insiders encounter additional conflicts of interest in connection with the purchase of shares of an ESOP company, which most often displays insiders as sellers and in respect of decisions on how to select shares held by ESOP but not yet allocated to participant accounts. In ESOP leverage, these unallocated shares often far exceed the number of shares allocated for years after leveraged transactions.
Other forms of employee ownership
Stock options and similar plans (stock appreciation rights, ghost stocks, and limited stocks, especially) are common in most industries and some developing countries. However, only in the US, there is widespread practice to share such ownership widely with employees, mostly (but not entirely) in the technology sector (Whole Foods and Starbucks also do this, for example). The tax rules for employee ownership vary greatly from country to country. Very few, notably the US, Ireland and the UK, have significant tax laws to encourage broad-based employee ownership. In India, the employee stock option option is called "ESOP".
The most well-known (and studied) case of a multinational company entirely based on workers-ownership principles is the Mondragon Cooperative Company. Unlike in the United States, however, Spanish law requires that Mondragon Corporation members be listed as self-employed. This distinguishes cooperative ownership (in which self-employed owners each have a share of the vote, or shares controlled by cooperative legal entities) of employee ownership (where ownership is usually held as a stock block on behalf of employees employing the Employee Benefit Trust, or rules companies impose mechanisms to distribute shares to employees and ensure they remain majority shareholders).
The various forms of employee ownership, and their underlying principles, are closely related to the emergence of the international social enterprise movement. Major employee ownership agencies, such as the British Cooperative and Employee Ownership Association (EOA), play an active role in promoting employee ownership as a de facto standard for social enterprise development.
Other varieties of employee ownership include:
Direct purchase plan
Direct purchase plans allow only employees to buy shares in the company with their own, usually after taxes, money. In the US and some foreign countries, there are special plans that meet the tax requirements, which allow employees to buy stocks either at a discount or by matching the stock of the company. For example, in the United States, an employee can opt-out after-tax payments over a period of time (usually 6-12 months) then use the collected funds to buy the stock up to a 15% discount on the current price. buy or the time when they start putting aside money, whichever is lower. In the purchase of British employees can be matched directly by the company.
Stock options
Stock options grant employees the right to purchase a fixed number of shares at a grant for a specified number of years in the future. The options, and all the plans listed below, may be assigned to any employee under any company-made rules, with limited exceptions in various countries.
Limited stock
Limited stocks and nearest limited stock units give employees the right to earn or receive shares, with gifts or purchases, after certain restrictions, such as working for several years or meeting performance targets, are met.
phantom stock
Phantom shares pay future cash bonus equal to the value of a certain number of shares.
Share appreciation rights
The share reward entitlement gives the right to increase the value of a designated number of shares, usually paid in cash but sometimes resolved in shares (this is called "stock-settled" SAR).
Co-operative
Source of the article : Wikipedia
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