Property, ownership and employee ownership: employee control in ESOPs

Abstract

PurposeMost people associate ownership with the ability to control something. In the USA, employee share (or stock) ownership plans (ESOPs) are one of the principal forms of employee ownership. However, most ESOPs give employees very limited rights of control over the company they own. This paper explore this conflict by examining theories of property and ownership to determine whether the right to participate in decision-making is inherent in the idea of ownership as it is generally understood. Ultimately, the author argues that the law governing ESOPs should be revised to give employees a larger role in the governance of their companies.Design/methodology/approachThis paper considers the concept of ownership both historically and analytically. The author examines the roots of property theory in the work of John Locke and contemporary theorists, as well as contemporary theorizing about ownership.FindingsThere are two kinds of ownership: legal ownership and psychological ownership. In legal ownership, the right to participation is inherent but alienable, so one can legally be an owner of something but have no right of participation. Psychological ownership primarily arises from a sense of control. Legal ownership confers some part of the bundle of rights associated with property. Psychological ownership conveys a feeling of efficacy, responsibility and control, but no formal rights. The author argues that, for employee ownership to be more than mere property-holding, it must include meaningful participation in decision-making, including governance.Research limitations/implicationsThis paper is only concerned with ESOPs in the USA. Although the findings may be applicable, it does not address other forms of employee ownership or employee ownership outside of the USA.Practical implicationsPeople associate ownership with the ability to control something, so when workers are told they own their company but then find they have few control rights, it may undermine their sense of ownership. This then has negative implications for the company's success. To ensure meaningful levels of governance rights, policy-makers should revise the laws governing ESOPs to require greater involvement by employees.Social implicationsClarifying ambiguities around ownership will help support arguments for affording employee-owners greater control rights in their companies, which will have various spill-over effects.Originality/valuePractitioners and scholars alike deploy the term, “ownership” but ascribe different meanings to it. The distinction between legal and psychological ownership is largely lacking in the ESOP literature. Clarifying this distinction will help to move the discussion forward regarding employee participation in ESOPs. In addition, the paper provides an original analysis of property that demonstrates the importance of the right to control, showing that the traditional ESOP structure may violate important aspects of that right.