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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 provide job security, which in turn stimulates increased productivity

As a result of the job security afforded members of an ESOP, this is reflected in the company's level of productivity, which sees a beneficial increase.

The Argument

Due to the way ESOPs run, they provide a sense of security to employees looking for job stability. Since employees have a stake in the company's ownership, this makes it much more difficult to lay them off. Having employees in the room where executives make decisions would also keep them better informed, leading to fewer tensions between the two parties, ultimately driving firings and layoffs down. ESOPs have also proven to maintain job security even during economic downturns such as the housing market crash in 2018. [1] A survey conducted in 2014 by the General Social Survey showed that U.S. workers with employee stock ownership are less likely to be laid off than employees without employee stock ownership. More specifically, the survey found that only 1.3% of employees with employee stock ownership (including other forms of employee ownership too) got laid off in the last year. In comparison, employees without stock ownership saw a rate of 9.5% in layoffs. [2] All in all, employees afford ESOPs a resilience most other kinds of companies do not have, and in return, employees do not need to worry about their job situation.

Counter arguments

While ESOPs might seem to offer a greater sense of security, there is also the potential to do more bad towards the employee than good. The problem appears to lie in an ESOPs retirement plan. Employees are likely to invest a great deal of money in the ESOPs stock, up to three times more than their retirement plans. [3] If the ESOP fails, the company's failure is bound to deal a crushing blow to its employees, each of whom invested a great deal in the ESOPs stock. Essentially, the risk associated with employees receiving a share in the company's stock is massive, and in a way has the potential to be just as damaging to the employee if everything goes sideways.

Proponents

Premises

Rejecting the premises

References

  1. https://www.marketwatch.com/story/working-for-this-type-of-company-can-make-you-feel-more-financially-secure-and-want-to-do-a-better-job-2018-09-12
  2. https://www.chartwellfa.com/GSS-survey-2014#:~:text=The%202014%20GSS%20found%20that,employees%20without%20employee%20stock%20ownership.
  3. https://lawecommons.luc.edu/cgi/viewcontent.cgi?article=1081&context=luclj
This page was last edited on Monday, 9 Nov 2020 at 16:25 UTC

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