Shared Capitalism

notes from

Kruse, Douglas L., Richard B. Freeman, and Joseph R. Blasi, eds. Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing, and Broad-Based Stock Options. (Chicago, London: University of Chicago Press, 2010).

as well as from sources listed at bottom

Shared Capitalism is defined by Kruse, Freeman, and Blasi as any of a “diverse set of compensation practices through which worker pay or wealth depends on  the performance of the firm or work group.” These practices are broken down into the following types:

1. Employee Ownership

Employee ownership refers to any form of, you guessed it, employee ownership of a company — and the extent of it can range from 100% employee ownership to ownership of a majority stake or a “nonnegligible minority stake.” Excluding the cases of complete ownership, usually the employee-owned shares are placed in a trust that votes all the shares as a group.

In the US, one form of Employee Ownership is the ESOP, or Employee Stock Ownership Plan, which was established by federal legislation and has certain tax breaks associated with it. In an ESOP, the company puts money in a trust to buy worker shares, or it borrows money to fund the purchase of worker shares. Either way, the workers gain ownership without investing their own money.

“Employee ownership can, in theory, give employees the power to make decisions that shareholders have in capital-owned firms.”

 Employees gradually vest in their accounts and receive their benefits when they leave the company (although there may be distributions prior to that). Close to 12 million employees in over 11,000 companies, mostly closely held, participate in ESOPs. (NCEO)

2. Individual Employee Stock Ownership

When workers buy shares for themselves, vote their shares privately and as individuals. Sometimes companies will match employee contributions to their 401k with company stocks.

Sometimes they will enact what’s known as a an Employee Stock Purchase Plan, or ESPP, which is a subsidized purchase plan allowing employees to buy stock at a discount from the market price.

3. Profit Sharing

Workers get a specified share of the profits when the company makes money. Sometimes a company will pay profit sharing bonuses in company stock, so in that case a profit share would become employee ownership.

4. Gain Sharing

Workers get profits based on their individual unit’s performance  — rather than the performance of the company as a whole.

5. Stock Options

Stock options fall somewhere between profit sharing and employee ownership. A stock option is the right to buy stock at a set price anytime during a specified period after the granting of the option. The idea is to give managers incentives to make decisions that increase the long run value of the firm and thus its share price.

Employees who are granted stock options hope to profit by exercising their options at a higher price than when they were granted.

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see also Wikipedia, “Employee Stock Ownership Plan”, “Employee Stock Purchase Plan”and SEC, “Employee Stock Options Plans”, “Employee Stock Ownership Plans”, NCEO, “How to choose an employee stock plan

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Comments
One Response to “Shared Capitalism”
  1. dem says:

    Again, how much of all of this do we want to actually mention? My fear, of course, is in it turning into a lecture of employee-ownership plans. My interest is in the underlying issues, e.g. the idea that an ESOP alone isn’t enough, that shared capitalism needs to go hand in hand with shared decision-making, etc. And then how these different options (or the Mondragon cooperative model / Cleveland Model, or the other points made in the Employee Ownership Scenarios post) relate to those underlying conceptual issues.

    Food for thought for us and Qui as we move forward on the Workers section…

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