What is sloESOP?
Good practice of the ESOP model around the world
The ESOP model has a strong tradition in the US, where it has been legally supported since 1974. ESOP companies in the US employ 14.7 million people, representing 10 % of the private sector workforce. In America, around 250 companies convert to the ESOP model each year.
The ESOP model was also endorsed in the UK in 2014, and in 2023 ESOP buyouts were the second most common way to deal with property succession in the UK. Today, there are almost 2,000 ESOP companies in the UK, employing around 250,000 workers.
In 2024, the ESOP model was endorsed by the Government of Canada, and in the same year the Government of the Republic of Slovenia approved the starting points for the Slovenian ESOP law.
Why is sloESOP the best model for employee co-ownership?
sloESOP is based on decades of scientific study and economic practice in the field of employee ownership. It successfully combines theory with good practice and corrects some of the shortcomings of other models.
Basic features of the sloESOP model
Employee ownership through a fund
The shares in the company are held by a separate legal entity on behalf of the employees.
Gradual leveraged buy-back
The buy-out from the owner or the company (issuance of new shares) is repaid gradually, with the company contributing a share of the profits each year.
Right to capital value
Employees have the right to capital value, which encourages the retention of profits in the company.
Phasing-in of new staff
New employees are gradually integrated into the ownership, allowing a smooth adaptation.
Sustainability of internal ownership
Workers who leave cannot retain ownership.
Stability and liquidity
Free cash flow pays off the value held by employees, and the system remains stable in the event of a liquidity crisis.
Co-decision
Employees are involved in co-determination through their representatives, which means that there is no need to involve the whole collective at the AGM.
How it works
ESOP buyout?
Transfer of ownership
Check how the transfer of ownership to employees works in this informative video.
How is the debt repaid?
Debt repayment Part 1
Check how the repayment of the debt to the owner (2024) is done in this informative video.
Debt repayment Part 2
Check how the repayment of the debt to the owner (2025) is done in this informative video.
How does the European ESOP work? The European ESOP is best understood in three steps:
Initial transaction
First, the values of the company's shares are assessed.* Once the seller and the buyer (the ESOP fund) agree on the value, the seller sends the shares to the owners' cooperative. workers (LZD) transfers shares or interests in exchange for pbut the company commits to gradually repay the value of the share through profits. Alternatively, the seller can be paid in one lump sum by means of a bank loan financed in the same way by the company.
Valuation of shares is an important part of an ESOP transaction. It should be noted that the valuation for the purpose of an internal buy-out is different from the valuation for a sale to an external investor. This is because the internal buy-out is financed by the profits of the company and the ESOP model requires an annual valuation.
For these reasons, we advocate that the basis for assessing the value of a share or holding should be the net asset value, i.e. the accounting value of capital. The value of a share or interest in an ESOP buyout will often be lower than the value offered in the market. Sellers should consider additional motivations for an ESOP transaction:
- Award for employees who helped build a business success story
- Preserving jobs in the local community
- Continuing the organisational culture and business vision set by the founder
- Better assurance that the legacy of the founder is preserved
- Tax reliefs are needed to bring the net payment to the owner closer to the competitive payout of a sale of shares or interests on the market
Payment to the seller
Each year, the company transfers funds to the LZD to be used to repay an external creditor (seller or bank). When debt is repaid, the equity points in the fund, which mirror the value of the shareholding/shares, are redistributed proportionally to the Individual Capital Accounts (ICA) of the members of the LZD. The key for the distribution of the equity points is pre-determined - it can be egalitarian or linked to the company's wage relationships. Once the debt to the external creditor has been paid in full, all the equity points are distributed among the members' ICRs.
Interim payments
After the external creditor has been repaid, the company continues to transfer funds to LZD annually, which are be used to redeem members' equity points on the ICR using the FIFO method ("first-in, first-out"). the LZD shall redeem the oldest-dated ownership points from the members, pay out the members and redistribute the points back to all active members, again depending on the distribution key. Liquidity is key to maintaining the co-ownership system.
- Establish a bonus scheme for employees to motivate loyalty and effort in the performance of their duties.
- Ensure that new employees are gradually but automatically integrated into the co-ownership.
- Ensure that the LZD pays out departing employees without an unexpected liquidity requirement jeopardising the company's business.
OwnerWise - Support for Implementation Worker co-ownership in enterprises
The transition to employee ownership can be challenging and domain knowledge and experience are important for a successful transfer of ownership.
The Institute for Economic Democracy has joined expertise with financial advisory firm Capital Genetics in the OwnerWise project, which provides comprehensive advisory services for companies seeking support in establishing employee co-ownership.
Would you like to know more about what sloESOP is, how it works and whether it is suitable for your company? Contact us!
Contact
- Institute for Economic Democracy
- Slovenska cesta 53, 1000 LJ
- info@ied.si
- +386 68 683 547
- SI21831629
Slovenian 
English