What if the people who built the company’s success also owned a stake in its future? Across South Africa, millions of employees work tirelessly to deliver value — yet too often, they remain disconnected from the wealth they help to generate. Employee Share Ownership Plans (ESOPs) challenge this imbalance, offering a powerful tool to align purpose with profit, and to ensure that those who contribute the most are not left behind.
ESOPs are a popular mechanism for the implementation of broad-based empowerment. While early Black Economic Empowerment (BEE) transactions primarily benefitted a few key individuals, they have since become more inclusive. Nearly all contemporary BEE transactions now include an employee component. Equal allocation is the most common allocation methodology, where all employees, irrespective of race, gender, age, or employment level receive the same benefit.
Thousands of beneficiaries have participated in broad-based empowerment schemes in the form of ESOPs implemented by companies such as Old Mutual, Barloworld, Kumba, Capitec, Woolworths, Clicks, Shoprite, ABSA, Harmony and Valterra, to name a few.
Many of these schemes resulted in significant value for ordinary South Africans:
- The unwind of Kumba's Envision ESOP in 2011 delivered R2.7 billion to approximately 6 200 eligible employees who received a final pre-tax payment of about R576,000 each.
- The Woolworths ESOP, which matured in 2015, delivered R2.4 billion to approximately 17 000 beneficiaries, which resulted in average payouts of about R200,000 each.
- The unwind of the Clicks ESOP delivered R2.8 billion (R1.3 billion in 2018 and R1.5 billion in 2019), which resulted in average payouts of about R355,000 to over 7 800 participants.
The employee ownership models used by companies like these is a vesting scheme - a structure designed not just to reward, but to empower. These transactions are typically made possible through a blend of entry discounts, external funding, and financial support from the employer company itself. Over time, as the value of the shares grows, a portion is sold to repay the initial funding - and the remaining value is distributed to employees. It’s more than just a financial mechanism; it is a way to ensure that workers share directly in the wealth they help to create.
An alternative to vesting schemes is an evergreen scheme where the shares are retained in an ESOP trust, and current employees receive payouts as the employer company pays dividends. This results in a sustainable structure that does not need to be replaced in future. The structure also allows new joiners to benefit when they join the company.
The new Shoprite ESOP, implemented in 2022, is structured as an evergreen scheme. In the two years prior to April 2024, the Shoprite Employee Trust has paid out more than R500 million to more than 122 000 employees, demonstrating a commitment to sharing the group's success and rewarding their contributions. For sustainability, the employer company needs to have a reasonable dividend yield, which will enable meaningful dividends to be distributed to the ESOP beneficiaries.
In addition to the financial benefits, an ESOP scheme provides other qualitative benefits. Throughout the duration of an ESOP, employees are able to elect trustees of their choice to represent them, receive annual feedback on the financial performance of the scheme and get an opportunity to increase their level of financial education.