ESOPs perform better than non-ESOP companies

The argument

Employee-owned companies, or ESOPs, perform much better than one might anticipate. Since ESOPs are made up of not only founding members but employees as well, this promotes a greater sense of trust and ethics in the workspace. By including employees in the decision-making process, employees no longer need to worry about management making decisions against their interests. Another benefit that ESOPs encourage includes an improvement in the quality of its workers' well-being, which in turn affects its workers' productivity. According to a survey conducted by the Employee Ownership Foundation, 76% of respondents indicated the ESOP positively affected the overall productivity of the employees. If employees feel like they can play a greater participatory role in their work environment, it stands to reason that this would serve as a boost in morale, motivating said workers to be more productive. In addition to these beneficial strides, the clearer line of communication afforded to both management and employees also allows both parties to more efficiently develop corporate plans as well as resolve any existing difficulties. All in all, ESOPs are shown to improve relations between management and employees while also stimulating growth within a given company.

Premises

Counter-arguments

Despite some illustrations and frameworks which portray ESOPs as excellent performers, there is a way in which an ESOP can perform poorly. For instance, if an ESOP is not able to generate returns for the initial investments that went towards setting it up, this is one indicator of an ESOP's poor performance. Additionally, if the company is not generating profits, the tax benefits promised to each ESOP holder is deferred or lost altogether. This outcome would, in turn, cause employees to become demoralized. These employees, who were previously motivated to work harder due to their investment in the company, will now feel that their efforts are useless. As a result, they will not work as hard, making the business venture even less profitable. Thus, having a strong start is essential in setting up an ESOP. Without it, the time and money invested in the ESOP will not be returned in kind, and show in the work ethic of its employees.

Rejecting the premises

[Rejecting P1] Trust and confidence are described as following from ownership, but employee ownership does not by itself confer decision-making — governance varies widely, and many plans hold shares in trust with operational control unchanged. The premise assumes the participation it needs to establish. [Rejecting P2] The 76% figure comes from a survey of participants conducted by a body that promotes employee ownership, and it records the perceptions of people invested in the outcome rather than measured productivity. "Perform better" is also comparative and needs matched firms to compare with, which are not offered, while the counter's point about what happens when the returns do not materialise goes unanswered.