ESOPs are top of the pops

2012-02-22 13:17

Clem Sunter

Back in the last century, I remember being allotted a small number of Anglo shares each year along with all other employees of Anglo itself and some of the companies in the wider group. The scheme did not last that long but I still have the shares; and I could buy a new hi-fi system if I cashed them in.

Some unionised employees were persuaded by the shop stewards not to take up the offer because there had to be a catch. There was no catch – and when they saw their colleagues selling the shares a few years later and buying something nice with the proceeds, they were up in arms. But to no avail, the offer had come and gone.

The whole point of the scheme was to foster a certain loyalty to the group. Obviously, some of the union representatives felt that this was undermining the loyalty of their members to the union. Worse still, it was making them part of the capitalist system with the possibility of siding with the bosses on some issues under negotiation. In addition, there was a fear that the granting of the shares could be used as an excuse by management to hold out for lower wage increases in the annual wage review. In other words, despite the honourable intentions of the initiative, the response varied from gratitude to suspicion to outright rejection.

As one of the original proponents of the idea, I feel that the whole notion of employee share ownership programmes (ESOPs) has never been adequately explored. The much larger sums of money recently handed out by companies like Kumba in terms of their ESOPs make it an opportune time to consider whether employees collectively owning a significant portion of the company they work for should become a more widespread practice. Personally, I regard it as a very neat way of solving the classical antithesis between capital and labour so admirably advanced by Karl Marx. The only mistake he made was to say that the state should own the means of production on behalf of the workers as opposed to direct ownership by the workers themselves.

Some of my business friends tell me that my views on this topic are totally off the wall since it cuts right across the principle that those who put up the money and take the risk should get the rewards. Companies should be entirely owned by the entrepreneurs who established them and the shareholders who subsequently joined them or were part of the original venture. My answer is simple: I am not asking those individuals or corporate entities who took the risk in the first place to give up their entire participation in the rewards. I want them to share the rewards with the workers who sweat it out down the mines or on the shop floor. The latter take risks too including the fact that their livelihood rests on the business remaining viable.

Another reason I would like ESOPs to become the norm in South Africa is that they are a much fairer way to resolve the issue of black economic empowerment (BEE) as it relates to ownership of capital. All that has happened so far with BEE deals is that a few well-connected black individuals have become exceedingly rich. Their value-add as passive investors is questionable too. Many of them have limited knowledge of the industries to which they have been introduced as a newcomer.

In contrast, many employees in industries like mining have been in the game for many years. I recall all the long-service ceremonies that I attended as the person who gave out 25 year and 40 year awards to meritorious individuals. They are the ones who have the experience which would make them ideal candidates for some board-room discussions. Indeed, as part of the ESOP, I would recommend that at least one (if not more) director should be on the board as a worker representative. It could be the shop steward or another official of the union; or just a plain ordinary employee chosen by his or her colleagues to go into bat for them.

Again, I can hear calls from my chums about conflict of interest; but that can be handled by recusing yourself from items on the board agenda where this is likely to happen. In summary, I would love South Africa to come up with an ESOP model that becomes the envy of the world and resolves the conflict between capital and labour.
 
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