Pros and cons of employee share ownership

Lihle Mtshali

Lihle Mtshali

Employee share ownership plans (Esops) are becoming increasingly popular with South African companies, as evidenced by Woolworth's announcement this week that about 17000 of its employees would become shareholders of the retailer.

An Esop is a plan that allows employees to become owners of shares in the company for which they work. The general model of an Esop entails a company allocating a portion of its market share to employees in a form of shares that are kept in a trust that has been set up by the company. The allocation is done as a loan, payable from the dividends that will be paid out to the trust.

"Esops were first developed in the US and are now becoming increasingly popular in South Africa as a way of broadening the base of ownership and empowering employees," said Gavin Hartford, chief executive of The Esop Shop, which is an advisory company to corporate businesses that are implementing Esops.

Esops have been widely criticised as a tool that big corporates are putting in place on a short-term basis just so that they will be seen to be complying with the Broad-based Black Economic Empowerment Act and the subsequent codes of good practice.

Rudy Dicks, Cosatu's labour market policy coordinator says that the most critical question to ask when a firm embarks on an Esop is if the plan will be benefit workers.