As India’s economy matures and income inequality is changing, there is growing interest in
business models that promote inclusive growth and shared prosperity. Among these, employee-
owned companies offer a compelling vision for the future. While India has seen widespread
adoption of Employee Stock Option Plans (ESOPs) in the startup and tech sectors, significantly
employee-owned companies—where workers hold more than a 20 percent stake—remain
virtually non-existent. This presents both a challenge and an opportunity to rethink ownership in
Indian enterprise.
Globally, employee ownership has gained recognition as a driver of productivity, employee
loyalty, and long-term business sustainability. Models in the United States, such as Publix Super
Markets and W.L. Gore & Associates, and in the UK, such as John Lewis Partnership and Arup
Group, showcase how shared ownership can align employee interests with business performance.
These companies demonstrate resilience, innovation, and higher-than-average retention
rates—benefits that are highly relevant to India’s competitive and rapidly changing market
environment.
In India, while ESOPs have become common in high-growth firms like Infosys, Zerodha, and
Zoho, they typically grant employees small equity stakes, not governance rights or a strong voice
in how the company is managed. This limited approach constrains the full potential of employee
ownership. Moreover, the current tax structure penalizes ESOPs through a double taxation
system—first at the time of exercise and again at the time of share sale—reducing their appeal as
a long-term wealth-building mechanism for employees.
The lack of legal infrastructure to support trust-based ownership models is another key barrier.
Unlike the UK, where Employee Ownership Trusts (EOTs) allow founders to transition their
companies to significant employee ownership in a tax-advantaged manner, India has no
equivalent framework. Nor does Indian corporate law allow for leveraged ESOPs like in the US,
where an employee trust can borrow funds to buy out company shares. Without such structures,
transitioning to true employee ownership remains legally and financially impractical for most
Indian businesses.
To unlock this potential, India needs a multi-pronged reform strategy. Policymakers should
consider introducing a legal framework for employee ownership trusts, along with tax incentives
for founders who sell to such entities. ESOP taxation should be restructured to defer taxes until
employees sell their shares, encouraging longer-term participation. Additionally, banks and
financial institutions should be empowered to lend to employee trusts, facilitating ownership
transitions without external capital.
Building a supportive ecosystem is equally crucial. Awareness campaigns targeting
entrepreneurs, business advisors, and succession planners can help popularize the concept.
Government-backed think tanks, such as NITI Aayog, and institutions like the Ministry of
Corporate Affairs could play a leadership role by commissioning studies and drafting policy
guidelines. Public-private partnerships could provide technical assistance and financial backing
to companies willing to transition to employee ownership.
Past and present leaders of key trade associations in India understand the issues. The think tanks
should call on them to move the ball forward.
The time is ripe for India to embrace employee ownership as a strategy for equitable growth and
economic resilience. By enabling workers to become stakeholders, not just wage earners, India
can foster a more inclusive form of capitalism—one that rewards contribution, enhances
productivity, and ensures businesses remain rooted in the communities they serve. With the right
legal and policy environment, employee-owned companies could become a transformative force
in India’s economic future.
