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A Better Way than Worker Cooperatives and ESOPs

I have recently noticed a spate of material on the subject of worker cooperatives. The most interesting was the Forbes article “For Some, Worker Cooperatives Emerge As An Alternative To ESOPs” which made me wonder if worker cooperatives were a new trend.  If so, it certainly provides food for thought.  

The article suggests that worker cooperatives are a result of changing demographics and a means of addressing the disruptive effects of generational change. Perhaps, but their providing a solution for only “some” implies that ESOPs (Employee Share Ownership Programmes) are the only other option. While history certainly entitles both to be options, being the only two suggests rather limited thinking. After all, both have their shortcomings, which – at the very least – warrants exploring other possibilities.  

The best way to identify other possible options is to incorporate the strengths and eliminate the weaknesses of each approach and explore ways of addressing those, even if that results in some combination, or fusion, of the two. As the term ESOP implies, you need to have equity in order to introduce such a scheme. Equity, by its very nature, incorporates an administrative burden that varies in accordance with the size, type and value of the company and the number of equity shareholders. Consequently the extent to which individual strengths and weaknesses may apply will vary from organisation to organisation. The following lists, which are not necessarily exhaustive, are therefore intended to be a general, rather than absolute, guide.

So, with that caveat, let us analyze their comparative strengths and weaknesses.

Comparative Strengths/Advantages

One of the core principles of worker cooperatives is that workers have equal rights. This is arguably a strength, but does not always apply to ESOPs, where lack of equality or equitability can exacerbate disparity and create a sense of disillusionment and distrust totally opposite to the employee engagement intended.

Comparative Strengths - Co-ops vs ESOPs

Comparative Weaknesses/Disadvantages

With employee interest being part of the philosophical framework of worker cooperatives the issues around rewards are more integrated than with ESOPs.  No matter how well-intentioned the latter are, they are always an addendum to the organisational structure and consequently more susceptible to flaws. Significant structural shortcomings inherent to ESOPs can be:

  • The fact that membership is not necessarily automatically tied to employment, either when joining or leaving employment.
  • For lower-earning employees cash is king and a share allocation offers a potential windfall that makes selling the shares irresistible and so defeats the purpose of having employees “think like owners.”
  • The loss of potential earnings due to poor organisational performance can be demotivating rather than motivating – particularly in a listed company where the share price is public knowledge.

This is over and above the following:

Comparative Weaknesses - Co-ops vs ESOPs

So clearly a third option that retains the strengths and eliminates the weaknesses of both these established alternatives would be desirable. The good news is that such an option does exist.

The Third Way – The ‘Every Individual Matters’ Model

The ‘Every Individual Matters’ model offers you the means to:

  • Create a worker cooperative alongside or within a traditional equity structure without diluting shareholder rights or their historical benefits.
  • Equitably and consistently assign every employee a stake in the business simply by virtue of their employment and without any of the complications, costs or shortcomings associated with equity.
  • Engender the sense of ownership and organisational pride that ESOPs aspire to but often fail to deliver.
  • Offset the costs of your conventional incentive remuneration or performance related pay schemes with a ‘labour dividend’ that:
    • Is simple to operate
    • Is fair, equitable and unable to be manipulated
    • Encourages your people to ‘act like owners’
    • Promotes working as a team and furthers strategic objectives by embedding strategy throughout the organisation and at all levels
  • Eliminate most, if not all, the problems, cost and disruption associated with disputes and industrial conflict.    

And that is not all. You might even go so far as to say that, rather than espousing the “socialist” label so often associated with worker cooperatives,  the ‘Every Individual Matters’ model takes the capitalist imperative to a new level and extends all the benefits of the capitalist model to your employees. It recognises and rewards the investment of both investors and employees, and ensures they work together to reap the rewards of their mutual contributions in a more effective, more productive and less wasteful system.    

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If you like what you have read contact me today for a free 30 minute conversation about how my ‘Every Individual Matters’ Model can provide the catalyst to help you create an organisational culture of ‘Love at Work’ : one where everyone cares and the business becomes our business, so embracing change and transforming – and sustaining – organisational performance.

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Bay Jordan

Bay is the founder and director of Zealise, and the creator of the ‘Every Individual Matters’ organisational culture model that helps transform organisational performance and bottom-line results. Bay is also the author of several books, including “Lean Organisations Need FAT People” and “The 7 Deadly Toxins of Employee Engagement” and, more recently, The Democracy Delusion: How to Restore True Democracy and Stop Being Duped.

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