In recent years, employee share ownership schemes (ESOPs) have become something of a policy darling. The Department of Trade, Industry and Competition (DTIC) has thrown its weight behind these models, framing them as a way to broaden economic inclusion, democratise business ownership, and address persistent inequality. Yet, while the intention behind ESOPs is commendable, the reality on the ground is far more complicated.
At The CFO Centre, we work closely with businesses navigating ownership structures, particularly within the evolving B-BBEE framework. Recent discussions have largely centred on employment equity, skills development, and enterprise and supplier development. Ownership, which is arguably the most powerful lever for inclusive wealth creation, is often given the least attention and treated primarily as a compliance requirement.
We see what happens when ownership is approached this way. Having built businesses from the ground up, I have also witnessed how damaging it can be when equity is treated as a gesture rather than a growth incentive.
Equity is not a thank-you gift. It is not a bonus. It is not a public relations strategy. It is, when done properly, a mechanism to reward those who take risks, contribute meaningfully, and remain invested in long-term success.
Too often, however, this is not how ESOPs are implemented. Businesses feel pressure from regulators, procurement scorecards, or social expectations to allocate ownership stakes in ways that are not linked to performance or contribution. This results in passive shareholders who have no strategic involvement, take on no financial risk, and often lack any emotional investment in the company.
They do not build. They do not backstop. They do not bleed when the business is under pressure. Yet they stand to benefit from the upside.
This dynamic creates friction. It undermines morale for those on the frontlines. It complicates governance and slows down decision-making. It distorts what ownership is supposed to represent.
The challenge is even greater for early-stage and growth-phase businesses. These companies operate with limited capital, need to move quickly, and must make hard decisions to survive. Every share counts. Having inactive shareholders on the cap table can become a significant drag on both operations and culture.
This does not mean we should avoid rewarding teams or building inclusive business models. Quite the opposite. Shared value is critical to long-term sustainability. What matters is choosing the right structure to achieve it.
Bonus pools, profit shares, and long-term incentive plans can all be highly effective when thoughtfully designed. These models tie reward to contribution. They encourage performance without permanently diluting control. They are also more flexible and less likely to create resentment between those who earn equity and those who receive it passively.
There is also a broader issue at play. Many ESOPs are implemented with limited understanding of what equity truly means, both by the new shareholders and by those responsible for administering the scheme.
For employees, there is often confusion around what ownership actually entails. Many are not involved in governance, are unaware of their rights, and do not fully grasp the responsibilities of holding equity. In many cases, the shares are illiquid, with no defined market to sell into. Unlike listed shares, there is no secondary market. Employees who want to exit their positions often find there is simply no buyer. This makes the value of ownership more theoretical than tangible and undermines trust in the model.
For administrators, the complexity of these schemes is often underestimated. Costs increase as legal, tax, and compliance requirements evolve. Without clear planning, there is often no exit strategy for employees who leave. Repurchase obligations, funding requirements, and tax consequences can catch companies off guard. For small to medium-sized businesses without in-house capacity to manage the operational and governance workload, this creates a serious burden that can outweigh the intended benefits.
The problem is not shared ownership. The problem is diluted responsibility. Ownership should reflect real effort, real contribution, and real accountability.
Businesses are built through pain, perseverance, and purpose. Ownership must reflect that journey. It should be earned through value creation, not allocated for appearances. It should come with strings attached — performance strings, contribution strings, and accountability strings.
If we are serious about inclusive wealth creation, we need to design ownership structures that reflect the way businesses are actually built. That means rewarding the people who show up, take risks, and help grow the business — not just the ones who appear on a compliance checklist.
This is the moment to move beyond good intentions and start building ownership models that deliver meaningful outcomes.
Authored by Rowan De Klerk, CEO and Founder of The CFO Centre South Africa. This article is part of Rowan’s monthly newsletter. Subscribe to Financial Edge to access future editions.