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This month, The Public Goods Post features a guest essay from Corey Rosen, founder of the National Center for Employee Ownership and board member of the Public Goods Institute.
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Employee Ownership,
Public Goods and Oktoberfest
By Corey Rosen
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Oktoberfest is famous for its celebration of beer. Here in the United States, you might quaff a Fat Tire Beer made by the third largest craft brewer in the U.S., New Belgium Brewing. Or maybe a Harpoon Ale, or Deschutes IPA, or Alaska Brewing Stout, or Left Hand Sawtooth Ale, or one of several other beers from several other brewers that are all owned by an Employee Stock Ownership Plan (ESOP). It would be appropriate because it also turns out that October is Employee Ownership month. In fact, last year, to celebrate its becoming employee owned, Harpoon and Deschutes put out a joint “EHOP” beer.
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While sipping your brew, you might also think about what these companies are telling us about a new way to do business. Their employees make a fair wage, have a lot of say in how day-to-day work decisions are made, and most notably, after a short period of time become owners at the companies they work for. Their employers can provide this benefit because they get federal tax incentives and because employee owned companies perform much better, leaving more money to fund these plans.
In fact, some of America’s largest companies are employee owned. The National Center for Employee Ownership put outs The Employee Ownership 100, which is a list of the largest 100 companies whose stock is owned by a majority of their employees.The group includes such companies as Publix Supermarkets, one of the largest supermarket chains, and Winco, one of the fasted growing. Many of the nation’s largest engineering companies are on the list, as is W.L Gore (maker Gore-Tex®) and other leading innovators.
Though it is far from unusual in the U.S., employee ownership has tremendous and untapped potential to help resolve the seemingly intractable problem of economic stagnation for all but the very rich. The National Center for Employee Ownership estimates that there are 13.5 million participants in ESOPs and another 8.5 million getting stock grants.
The research on these plans shows that companies sponsoring them grow faster in terms of new jobs and sales, lay people off at one-third to one-fifth the rate of other companies, and provide employees with dramatically better retirement assets. In ESOP companies, employees average about 2.5 times the retirement assets as employees in other companies. Most ESOP companies are or will be 100% employee owned, and some are among the nation’s best-known companies.
ESOPs are most often used to provide a market for owners of profitable, closely held companies who are ready to retire. Often, these companies get sold to outside companies or private equity groups who move them, downsize their workforce, or even close them. When, instead, these owners sell to their employees via an ESOP, research shows that outcomes are generally much better for both the companies and their employees.
ESOPs have substantial tax benefits for selling owners – financial incentives that both political parties have supported (it is in Hillary Clinton’s policy proposals and the Republican Party platform). ESOPs are a good example of how legislation can leverage enormous change for small investments.
One of the most eloquent testimonials was by Eileen Fisher, of the iconic women’s clothing company. You can see it here.
Despite their growth, employee ownership plans have not achieved anywhere near the usage that they could. Given the nation’s focus on economic inequality, and bipartisan support for the idea, sharing ownership seems like it should be more actively promoted. State and federal programs could, for a very small amount of money, make tens of thousands of business owners more aware that this is an option. The cost would be nominal, especially compared to the billions wasted in tax incentives to get companies to move from one place to another.
Take a look at the graphic below to learn more
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Editors’ Note
ESOPs are employee ownership structures that are created and supported through federal legislation. Technically, they are a form of retirement plan, and come under the jurisdiction of ERISA – the federal Employee Retirement Income Security Act. The federal government, and some states, provide tax incentives to encourage business owners to sell their companies to their employees via ESOPs. As such, employee ownership is a “public good," fostered by government policy and law. A growing number of other countries have also passed legislation and created programs to support and increase employee ownership.
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