Employee Stock Ownership

Employee Stock Ownership Programs Employee Stock Ownership Employee motivation practices have significantly developed in accordance with the developing needs of companies to have skilled employees performing better, and the needs of employees of improving their social standards. Motivation strategies are not limited to financial bonuses, but also provide stock ownership programs in the case of listed companies. Specialists in the field have identified such programs to have an important effect on employee loyalty.

Employee Stock Ownership Programs Employee Stock Ownership Programs are employee benefit plans in which companies provide their different types of workers ownership interests in the company in case. These plans work by the employer allocating a certain number of stocks to each employee in accordance with their salary, but also with other performance assessment criteria. However, employees are not allowed to sell their stocks as they are held in the company's ESOP trust until they leave the company or retire.

This is intended to increase employee engagement and to determine employees to perform better. Basically, by providing employees company stocks, the company becomes more of an individual property of the employee. These employees own stocks of the company which determines them to increase their adhesion with the company, but also to feel that they are working for themselves. If they perform better, the company performs better, and the value of its stocks increases.

This is a good way of ensuring that employees have the company's best interest in mind when developing their work activity. However, employee stock ownership is not a modern invention in the U.S. During the mid 19th century, U.S. corporations leaders have identified the fact that many of their loyal employees that worked decades for them had no income when retiring. Therefore, they decided that they should establish stocks in the company that these employees would benefit from when retiring.

The issue in this case was also how to tax these employee stocks. Employee stock ownership can be provided by several models. ESOP is one of the most successful such models (Employee Ownership Foundation, 2010). In addition to this, employees are allowed to own stocks in the company they work for directly or by purchasing them. There are employee owned companies where employees become workers by being awarded stock options converted to stocks, by participating in stock purchase plans, and others.

However, it is important to understand that companies are not forced into developing and providing such plans for their employees. Employee Stock Ownership Programs can provide several benefits to the company and its employees (Patrick, 2013). The company ensures that large packages of its stocks are held by people that have the best interests of the company in mind, its employees. It is obvious that the company's employees want to see the company success, which means that they are more likely to improve their performance at work.

Different research studies have revealed the fact that companies that provide ESOP programs have higher productivity and profits. However, developing such a plan can be quite difficult for most companies. This is because these programs can be expensive. In order to develop a successful ESOP companies are required to invest $150,000 -- 250,000. In order to be cost effective, companies must have around $5 million in annual sales for each 40 employees. The team that establishes such plans must focus on the work of lawyers, valuation experts, and program trustees.

In order to benefit from such a team of specialists, companies must pay for their salaries and different taxes. In addition to this, companies that want to invest in ESOP programs must allow access to company valuation to their employees in these programs. There can be minimal requirements in such cases, but companies that want to be transparent with their employees provide more information. But most of these employees do not know how to interpret the information provided by the company.

Therefore, companies must also invest in training programs where their employees can benefit from financial education. These investments are intended to increase the sustainability of the company. However, this does not mean that the company must disclose confidential information to employees. Basically, employees in ESOP programs are entitled to receiving documents like the Summary Plan Description, Individual Benefit Statement, and the Annual Report. Company development is very important in developing ESOP plans.

These are good for successful companies, but in the case of companies that are not performing as established employees can become frustrated. This is because the company is not producing much value, which affects the ESOP program. Specialists in the field also consider that the success of ESOP plans depend on the motivation of companies that develop them.

In other words, companies that are only interested in the financial and tax benefits of these programs are not as successful with them as companies that have other reasons for investing in stock ownership programs for their employees. A strong motivation of successful companies with these programs can be represented the security of jobs. The benefits of employee stock ownership can be observed in countries within the European Union, the U.S., Australia, and others. Basically, 85% of large European countries provide employee share ownership plans.

The benefits that these plans have on employee motivation have determined many companies to invest in them. Companies in Saudi Arabia have also observed the benefits of these programs. In their need to modernize their management, Saudi Arabian companies allow their employees the opportunity.