CAS SEE Seminars with Guests: David Ellerman

The EurESOP model aims to foster economic democracy by promoting employee ownership and participation in companies. Unlike traditional corporations with external shareholders, democratic firms using the EurESOP model do not have “owners”. Instead, they have members based on their functional role of working in the firm. This is similar to how democratic municipalities function, with citizens as voters based on their residency.The EurESOP model is based on the American ESOP model but with key modifications. While US ESOPs are structured as trusts and operate as pension plans, EurESOPs are structured as cooperatives or associations and do not tie share benefits to retirement. This means employees can see cash benefits sooner, typically after the initial debt to the seller is paid off. The EurESOP process starts with the company selling shares to the ESOP in exchange for a debt note. The company then makes contributions to the ESOP, which are used to pay off the debt note. As the debt is paid off, shares are gradually distributed to individual employee accounts. The EurESOP model also includes a share rollover or recycling mechanism. Once the initial debt is paid, the company continues to make contributions to the ESOP. These contributions are used to buy back the oldest shares from employees, which are then redistributed to current employees. This ensures that ownership remains with active employees and fosters a sense of long-term commitment and participation.By distributing ownership among employees, the EurESOP model aims to create a more equitable and democratic workplace where employees have a direct stake in the success of the company. This can lead to increased employee motivation, productivity, and resilience. It also helps to anchor companies in their communities and prevent them from being sold off to competitors or private equity firms.