Rethinking Employee Share Ownership Plans in South Africa

Rethinking Employee Share Ownership Plans in South Africa

Rethinking Employee Share Ownership Plans in South Africa 768 513 Tamela

Corporates both globally and in South Africa are struggling to find and retain talent. One of the mechanisms that is becoming increasingly popular to counter this issue is the use of Employee Share Ownership Plans (ESOPs).

According to the Worker Share Ownership Report published by the Department of Trade, Industry, and Competition (DTIC) in May 2024, over the last five years, ESOPs have facilitated the transfer of R70.3 billion in wealth to more than 307,000 workers across 118 firms in South Africa.

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Former DTIC Minister, Ebrahim Patel, indicated that ESOPs span various sectors including mining, food and beverages, retail, and finance. During the Inaugural Worker Share Ownership Conference held in Johannesburg on April 23, 2024, Patel announced that, since 2019, 81 new ESOPs had been established or legally agreed upon.

Additionally, Patel noted that in the past year alone, corporate schemes had paid out R3.3 billion in dividends directly to workers, with two-thirds of this amount allocated to mining. On average, beneficiaries in the mining sector received R12,800 each.

The significance of these schemes in addressing inequalities and empowering South Africa’s workforce cannot be overstated. They should transcend mere token gestures aimed at attracting and retaining talent. However, careful consideration is needed in designing these schemes to ensure their sustainability and effectiveness. Exploring innovative financing models is essential to alleviate the debt burden on worker ownership structures, thereby enhancing their financial viability and long-term success.

One crucial factor to consider is the dividend policy set by the organisation, determining whether beneficiaries receive returns during the duration of the scheme. A dividend policy with an associated trickle dividend to participants, not only provides immediate benefits to participants; but also aids in servicing any debt that may have been incurred to establish the scheme. However, it is noted that dividends are influenced by the prevailing market conditions. Nevertheless, if there is room to distribute dividends, it is beneficial to do so.

Additionally, effective governance mechanisms are essential for the smooth operation and accountability of ESOPs. Workforce representation is crucial to foster an equitable distribution of decision-making power. These governance structures must be robust and aimed at promoting transparency, accountability, and active board participation. This ensures that the workforce is adequately represented and empowered in the decision-making processes.

How can we help?

Tamela brings a wealth of expertise in structuring and advising on employee ownership transactions including MTN’s Zakhele Futhi, Exxaro’s Eyesizwe, Barloworld’s Khula Sizwe, and Old Mutual’s Bula Tsela. More recently, we advised Harmony Gold on its replacement ESOP announced in January 2024 and African Bank on its Ikamva Lethu ESOP announced in March 2024.

Moreover, Tamela administers such schemes and operates a proprietary share platform designed for custody and administrative services for such schemes: further enhancing the ability to facilitate effective employee ownership solutions.

For more information contact Mathibe Hlapolosa on +2711 783 4907 or at

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