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What are the advantages and disadvantages of companies being 100% employee-owned? Show more Show less
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In some countries like the UK, company ownership has begun to trend towards employee-ownership (also called ESOPs). This allows essential employees to become shareholders in a given company. Despite the advantages this can afford founders, there are also some disadvantages that can entail with this approach to running a company.

Yes, there are advantages to making a company 100% employee-owned Show more Show less

Making companies employee-owned can lead to several distinct advantages, all of which propels the company forward.
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ESOPs perform better than non-ESOP companies

ESOPs can perform better than companies that aren't ESOPs because they have an enhanced sense of trust in one another, propelling the company forward. Other factors that are enhanced by ESOPs include decision-making, worker well-being, and company participation.

The Argument

Employee-owned companies, or ESOPs, perform much better than one might anticipate. Since ESOPs are made up of not only founding members but employees as well, this promotes a greater sense of trust and ethics in the workspace. [1] By including employees in the decision-making process, employees no longer need to worry about management making decisions against their interests. Another benefit that ESOPs encourage includes an improvement in the quality of its workers' well-being, which in turn affects its workers' productivity. According to a survey conducted by the Employee Ownership Foundation, 76% of respondents indicated the ESOP positively affected the overall productivity of the employees. [2] If employees feel like they can play a greater participatory role in their work environment, it stands to reason that this would serve as a boost in morale, motivating said workers to be more productive. In addition to these beneficial strides, the clearer line of communication afforded to both management and employees also allows both parties to more efficiently develop corporate plans as well as resolve any existing difficulties. [3] All in all, ESOPs are shown to improve relations between management and employees while also stimulating growth within a given company.

Counter arguments

Despite some illustrations and frameworks which portray ESOPs as excellent performers, there is a way in which an ESOP can perform poorly. For instance, if an ESOP is not able to generate returns for the initial investments that went towards setting it up, this is one indicator of an ESOP's poor performance. Additionally, if the company is not generating profits, the tax benefits promised to each ESOP holder is deferred or lost altogether. This outcome would, in turn, cause employees to become demoralized. These employees, who were previously motivated to work harder due to their investment in the company, will now feel that their efforts are useless. As a result, they will not work as hard, making the business venture even less profitable. [4] Thus, having a strong start is essential in setting up an ESOP. Without it, the time and money invested in the ESOP will not be returned in kind, and show in the work ethic of its employees.

Proponents

Premises

Rejecting the premises

References

  1. https://www.jstor.org/stable/27801033?seq=1
  2. https://www.amanet.org/articles/how-employee-ownership-benefits-executives-companies-and-employees/
  3. https://hbr.org/1987/09/how-well-is-employee-ownership-working
  4. https://bizfluent.com/list-7308255-esop-disadvantages.html
This page was last edited on Thursday, 12 Nov 2020 at 03:39 UTC

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