​​How Blockchain Digitizes & Enhances Employee Stock Ownership Plans (ESOPs)
By Robin Massini

Aug 02, 2021

Revolutionizing employee incentives to the benefit of all

A company’s core team and employees can be likened to the engine that drives a business. It’s no wonder that, in addition to steady salaries and the occasional performance-based bonus, companies look for ways to further benefit their employees and allow the success of the company to be reflected in the employee rewards. Employee Stock Ownership Plans (ESOPs) are a viable option for companies of all sizes. In fact, many large publicly traded corporations prefer to utilize and include ESOPs in their employee benefits. But what are ESOPs and how do they stand to benefit from Blockchain technology.

How ESOPs benefit employers & employees.

Employee Stock Ownership Plans allow companies to remunerate employees by giving them incentives to see the company perform well. Specifically, in regards to the company’s stock value. Employees receiving company stocks are directly affected by fluctuations in the company’s stock value, giving them the incentive to go the extra mile and aim for peak performance. In this scenario, keeping the shareholders content will directly benefit the employees.

Yet, monetary benefits aren’t the only way in which ESOPs carry weight with employees; like most stocks, ESOPs oftentimes provide recipients with a number of privileges, including voting rights and access to certain shareholder-exclusive reports or disclosures. Additionally, certain legal rights are provided to ESOP holders who feel wronged in their valuation or otherwise.

For employers, a wholly different set of benefits presents itself. Aside from the direct link between hard work & rewards increasing employee motivation, employee retention is also boosted by the distribution of ESOPs. Employees are more likely to see things through when they hold a personal stake in the company’s success. In addition, ESOP options allow employers to substitute cash compensations, which softens the company’s cash outflow. This is especially beneficial to businesses starting operations on a large scale, or are otherwise expanding their business.

Next-generation ESOPs on blockchain.

ESOPs have existed since the early 20th century, meaning we can safely call them a traditional method of rewarding employees for their efforts within the company. According to ESOP.org, a nonprofit providing research on employee stock plans, the number of participants in ESOPs continues to grow. The largest majority employee-owned company, supermarket franchise Publix Super Markets, boasts 202.000 in their Employee Stock Ownership Plan & Stock Purchase Options. Other major companies such as Winco Foods (19.000 employees) and Parsons (16.000 employees) also offer ESOPs, as do more immediately visible brands such as Google, Amazon, and Microsoft.

With the total number of ESOP recipients reaching over 14 million, it’s clear that the market for an advanced new iteration of traditional ESOPs is significant.

The question becomes, how can blockchain technology streamline ESOPs and provide additional benefits to both its recipients and issuers? There are many new possibilities that digitization onto an immutable ledger can provide, some known and many unknown.

For instance:

1. Fostering Trust In Employers

Blockchain technology allows for the mechanics of ESOP to reach a level of transparency not traditionally seen. Employee incentive plans launched on blockchain benefit from consensus mechanisms, which record the employee’s granted benefits at each node. The immutable and traceable nature of blockchain ensures fairness and instills trust in the system and, by extension, the company.

2. Increasing Speed & Efficiency

The application of blockchain technology can greatly increase the efficiency of the mechanics of employee incentives such as ESOPs, especially when compared to the traditional methods. The ability to utilize smart contracts to ensure certain requirements are met for transfer or release allows for a vast array of possibilities. White lists can be created, perimeters can be set for employees who leave the company, transfer agreements won’t need to be manually signed, and a reduction of paperwork and busywork means a reduction of time and money better spent elsewhere.

3. Providing Flexibility

The tokenization of employee benefits means recipients would gain increased flexibility in what they can do with their assets. Giving employees direct, and immediate, control over their own share of equity is a powerful incentive. Meanwhile, employers would be able to manage the various characteristics of the benefits in a decentralized blockchain system. Think of the ability to fractionalize shares, for example, and easily manage transferability, voting rights, options, etc.

Enter Dusk Network.

We’ve previously discussed how real share ownership can be provided on blockchain in the context of Dusk Network’s collaboration with the NPEX stock exchange, of which Dusk Network is a shareholder. In particular, we bridged one of the major barriers of traditional stock and share digitization: the adherence to the traditional financial regulations currently in place. This new generation of stocks and shares needs to be compliant with the strictest European regulations to gain acceptance and adoption.

To avoid the risk of potential violations, this requires oversight and a sustainable plan for ESOP distribution through blockchain technology.
Such are the growing pains of adopting new, revolutionary technology. In return, we enable traditional rewards to receive the upgrade they desperately need, to the benefit of employers, employees, and the unstoppable advent of blockchain technology.

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