Who Really Runs an ESOP?

When people hear that a company is 100% employee-owned through an Employee Stock Ownership Plan (ESOP), they often assume that employees vote on every decision or run the day-to-day operations. In reality, the governance of an ESOP is very similar to that of a traditionally owned business—with some key differences.

While employees benefit financially from ownership, the management team still runs the company, the Board of Directors provides oversight, and an ESOP Trustee ensures that employee-owners’ interests are protected. Let’s break down what this governance structure really looks like.

The ESOP Structure: Who’s in Charge?

An ESOP is essentially a retirement plan where employees receive shares in the company over time. These shares are held in a trust on behalf of employees, and while employees are the beneficiaries of this trust, they do not directly control business decisions. Instead, governance is structured like a traditional company, with three key players:

1. Management Team: Running the Business

➡️ Who they are: The CEO, executive team, and department heads
➡️ What they do: Handle daily operations, strategic execution, and decision-making
➡️ Who they report to: The Board of Directors

Just like in a privately owned or investor-backed company, the management team is responsible for leading the business. They set company goals, manage employees, and ensure that the business remains profitable and competitive. Employees don’t vote on daily decisions like hiring, pricing, or marketing—those responsibilities remain with management.

2. Board of Directors: Strategic Oversight

➡️ Who they are: A group of individuals appointed to oversee company performance
➡️ What they do: Provide oversight, approve major strategic decisions, and hire/fire the CEO
➡️ Who they report to: The ESOP Trustee (on behalf of employee-owners)

The Board of Directors plays a crucial role in guiding the company. They approve major decisions—such as acquisitions, expansion plans, or leadership changes—but do not run day-to-day operations. Some ESOPs include employee representation on the board, but ultimately, the board operates for the long-term success of the business rather than being driven by employee votes.

3. ESOP Trustee: The Employee Watchdog

➡️ Who they are: An independent fiduciary
➡️ What they do: Represent the best interests of employee-owners in ESOP-related matters
➡️ Who they report to: Legally bound to act in employees' best interests under ERISA (Employee Retirement Income Security Act)

The ESOP Trustee is unique to employee ownership. They act as a fiduciary, meaning they are legally responsible for ensuring that the ESOP is managed fairly and that employees receive the financial benefits they are entitled to. The trustee appoints the board and approves major transactions affecting employee shares, such as mergers or company sales.

What Doesn’t Change in an ESOP?

Many assume that when a company becomes employee-owned, everything changes. In reality, the core business functions remain the same:

✅ Day-to-Day Decision-Making: Management still runs the business just like before.
✅ Strategic Oversight: The Board continues to guide company strategy and leadership.
✅ Corporate Structure: ESOP companies still have a CEO, department heads, and employees with defined roles.

What Does Change?

While the structure remains familiar, there are some key cultural and financial shifts in an ESOP:

🔹 Employees Have a Financial Stake: As owners, employees benefit from company success through share value growth.
🔹 Greater Transparency: Many ESOP companies share more financial information to help employees understand how their work impacts company performance.
🔹 Long-Term Thinking: Unlike private equity or outside investors, an ESOP prioritizes sustainable, long-term growth over short-term gains.

The Bottom Line: ESOPs Blend Traditional Governance with Employee Benefits

An ESOP is not a free-for-all where employees vote on every decision—it’s a structured ownership model that blends traditional corporate governance with employee financial benefits. The management team runs the company, the board provides oversight, and the ESOP trustee ensures employees’ ownership interests are protected.

By maintaining strong governance while giving employees a financial stake in success, ESOPs create a powerful balance of stability and long-term value creation—for both employees and the business as a whole.

Thinking about transitioning your business to an ESOP? Let’s talk about how employee ownership can work for you!