Both are forms of employee ownership, but that is just about the extent of their similarity. ESOPs, or Employee Stock Ownership Plans, are fundamentally retirement plans much like 401k plans except they invest only in company stocks. You may have heard of Stock Option Plans, but that is something completely different.
An ESOP is an example of indirect ownership. A worker cooperative is an example of direct ownership. In an ESOP the employees do not directly own their shares. They are held in trust for their benefit by a Trustee appointed by the employer. Therefore, ESOP participants do not usually have any influence on how the company is run. The Trustee votes their shares for them. Only a very small number of 100% employee owned companies have taken the final step towards democratic governance. Most companies with ESOPs have implemented a culture of employee participatory management style, but not actual control.
In a worker cooperative, each employee purchases and directly owns one voting share of the company. Each owner has one vote, so the main difference between worker cooperatives and ESOPs is in the area of control.
Most worker cooperatives pay out profits called surplus annually, but often retain a portion to be owned collectively. The company will pay the taxes on that portion. Another portion may be deposited in the worker’s individual capital account along with their initial buy-in share. When that happens, enough will be paid out in cash to cover the taxes on the worker’s portion of the surplus. In ESOPs, the shares that are held in the employee’s individual account is not taxed until he or she leaves the company and withdraws the funds in the account.
So both have individual capital accounts and both get liquidated and paid out when the participant leaves or retires. It is for this reason ESOPs need to have an annual evaluation to determine the value of their shares. Liquidating the voting share in a worker cooperative prevents control attached to the voting share from leaking out of the company.
Worker cooperatives can take many forms, but their real power is not revealed until they begin to work together.