Not Everyone Loves ESOPs (Part III)

In this, our final installment on common criticisms of ESOPs—and why they are wrong—we’ll look at the assertion that ESOPs are not real ownership.

According to cynics, ESOPs are “fake” ownership plans. In “real” ownership, they argue, the owners control their assets by determining such things as who runs the company, who sits on the Board of Directors, when major corporate decisions are made that might impact the future of the company, and so on.

But ESOPs are true ownership.

Cynics say that true owners do things like select the CEO and other executives, select the Board, determine pay and benefits, and decide how to dispose of assets—including whether to sell the company itself.

This criticism is nonsense. It equates having an ownership stake in a company with owning personal property, such as a car, house, or child’s teddy bear.

You can do what you wish with your personal property—buy it, sell it, or throw it away. But those who own shares in corporate stock do not tell the company that issued the stock what to do. Owning 50,000 shares of GM stock doesn’t entitle you to tell the folks at your closet GM plant what color to paint the cars, which models get four doors, or that it is time for the plant manager to find a new place to hang his hat.

Owning stock is not the same as owning personal property. It means you have a stake in the free enterprise economy, and can gain wealth therefrom.

For employee owners, holding shares of stock through an ESOP means they benefit from their own hard work. It means they can see a direct connection between their efforts and the health of the business—and their own personal financial health.

That is something that most businesses are seeking. Call it employee engagement or whatever other term you wish. Plenty of thought leaders and consultants encourage businesses to treat their employees like owners. But with an ESOP, employees truly own their fair share of the business—and enjoy all the potential rewards that brings.