ESOPs

At one point I was really excited around ESOP, the Employee Stock Ownership Plan. It seemed to work perfectly, and it was a US law. Then I researched it and I wasn’t so excited anymore.

The ESOP law was inspired by the book Capitalist Manifesto, by Louis Kelso and Mortimer Adler, but the ideas came from Kelso. As a recent post by Thomas Lewin put it, If you contribute to the success of an enterprise, you share in the reward,

• Shared Success: ESOPs embody the philosophy that those who contribute to success should also share in the financial rewards. This is a game-changer in driving employee performance and satisfaction.
• Retention Revolution: Say goodbye to the revolving door of talent. With ESOPs, your top performers have a vested interest in your company’s success and are more likely to stick around.
• Smooth Succession: ESOPs keep the power within the organization, ensuring a seamless transition and uninterrupted growth.
• Empowered Culture: Employees aren’t just workers, they’re owners. This fosters a culture of mutual respect, shared responsibility, and collective triumph.
• Win-Win Wealth: ESOPs are beneficial not just for the employees, but also for the company, with various tax advantages in play.

Lewin claims that ESOPs were … driving employee performance and satisfaction. That is pretty much the way I felt until I discovered how many loopholes have crept in the law over the years. Today is simply a windfall for the original owner.^∇ The employee-owners continue to be employees and have no say in the management of the business which continues to be ruled by a Board and a Fiat hierarchy.

Unfortunately, Kelso’s ESOPs stayed within the Fiat system, making it a little bit more generous (and more risky) for employees and definitely a windfall for Fiat owners.

Co-Ownership

Co-ownership provides these benefits for every co-owner,

• Shared Success: Community success, where every co-owner co-owns the dividends of companies.
• Retention Revolution: It is not so much retention-of-employees-to-make-wealth-for-me, but that people would want to stay with the community that they are part of. On the other hand, if they need to move on, they benefit from the part of the company they helped create.
• Smooth Succession: This doesn’t mean anything in a non-Fiat environment. On the other hand, if we interpret it as the “smooth succession” of the company Explicit Alignment itself, then this makes more sense. It means that the company doesn’t fall apart because of one departure.
• Empowered Culture: The ESOP is neither empowered nor a culture. On the other hand, Radical-based companies are a culture empowered by every co-owner in the team.
• Wealth: ESOPs divide what the Board decides are dividends distributed to employees. That’s not ideal. A mere division cannot supplant the co-owners participation in deciding who deserves what. Radical-based companies take every co-owner into consideration through the RADs! Mobile App.

ENDNOTES

• Matt Perez, Adrian Perez, Jose Leal. RADICAL COMPANIES: Without Bosses or Employees. 2021. <https://radicalcompanies.com>