Employee stock ownership as an instrument of inclusive growth

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Dennis L. Berino DBA

Dennis L. Berino DBA

Our country has experienced continuous economic growth since the start of the millennium and this can be directly measured in terms of GNP expansion from 2000 up to the second half of 2014. The country’s per capita and household incomes have likewise expanded, resulting in improved quality of life among the people. But during the same stretch, a third of the population still experienced hunger and rated themselves as poor. We continue to have a lot of Filipinos who go abroad to find gainful employment to provide for the needs of their families.

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There is this particular challenge for government and business institutions to craft certain policies and directions so that there is greater possibility for more of the population, specially the working class whose primary capital is their labor, to share in the fruits of economic growth.

One particular approach that business may consider in sharing its favorable performance is thru an employee stock ownership plan (ESOP). A source describes it as “a method that provides a company’s workforce with an ownership interest in the company. In an ESOP, companies provide their employees with stock ownership, often at no up-front cost to the employees. ESOP shares, however, are part of employees’ remuneration for work performed. Shares are allocated to employees and may be held in an ESOP trust until the employee retires or leaves the company. The shares are then sold.”

ESOPs were developed as a way to encourage capital expansion and economic equality. Some of the early proponents of ESOPs believed “that capitalism’s viability depended upon continued growth, and that there was no better way for economies to grow than by distributing the benefits of that growth to the workforce.”

Others argued that employee ownership could lead to an increase in production and profitability, and could improve employees’ dedication and sense of ownership. However, providing ESOPs alone cannot produce such effects; instead, ESOPs must be combined with worker empowerment through participatory management and other techniques to enhance its potential, not only to enhance the workers’ economic well-being but also to significantly contribute to their organizations’ sustainable and profitable performance.

The practice, however, is rare in our country. In informal surveys that I make in class among my MBA students who are mostly working in private enterprises, such an incentive plan is rare and in the instance that companies have it, they are usually from foreign businesses operating in the country.

Perhaps it is because of this situation that there was an initiative in Congress to institutionalize one of the vehicles for labor’s added participation in the economic development of our country as well as directly benefit from its results – thru ESOP. The proponents were guided by the Constitution’s avowal to organize the right of labor to its just share in the fruits of production and the right of enterprises to reasonable returns on investments, and to expansion and growth.

The initiative may be a work in progress, but the intent is something that businesses may consider to help address the still existing gap in wealth and well-being between the owners of capital and the county’s labor force. It is only through this particular effort of coming up with measures to generate inclusivity in growth, brought about by favorable economic and business expansion and having a viable means to reasonably share the wealth, can we find truly meaningful results for all concerned—business and labor alike.

Business is not meant to result in a zero-sum game where profits and benefits are largely cornered by a select few. There will be greater opportunities for wealth creation and quality of life improvement for everyone if the labor force can share from businesses’ positive results.

The author is a professorial lecturer at the De La Salle University Ramon V. Del Rosario College of Business. He welcomes comments at dennis.berino@dlsu.edu.ph.

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1 Comment

  1. Employee Stock Ownership Plan (ESOP) is one of the best if not the best profit sharing scheme other than cash bonuses or wage increases. Low risk for management and high reward for employees. We support the call to institutionalize ESOP!