he ESOP Association is pleased that employee ownership arose in the Democratic party Presidential debate last night and that multiple candidates were able to vocalize their support. We believe more Americans need to know about and participate in employee ownership—especially ESOPs, which are the largest and most common form of employee ownership—and would encourage greater discussion about this important form of business ownership in America.
In fact, through ESOPs, 10.6 million Americans already own a stake in the businesses where they work. That represents a larger number of employees than the entire U.S. auto industry. Participating in ESOPs helps address wealth and income inequality and can help our nation’s local economies as well.
While reasonable people can disagree on the best tactics used to grow employee ownership, it is entirely refreshing to observe that those in the Presidential field—Democrat, Republican, and Independent—seem to be in agreement that growing employee ownership is important for our economy.
Wealth and Income Inequality
ESOPs excel at addressing wealth and income inequality because they share the rewards of capitalism broadly with employees. ESOPs typically offer:
- Higher wages than conventionally businesses.
- Greater job security. ESOP companies are more likely to withstand tough economic conditions—like recessions—and are 6.2 times less likely to lay off employees.
- ESOPs typically offer two forms of retirement—the ESOP, which has no out-of-pocket cost to employees, and a 401(k). Many non-ESOP companies offer no employer sponsored retirement option.
- Greater opportunities for training, which spurs employee development and can result in employees earning higher salaries. Compared to conventionally owned companies, ESOPs are 40 percent more likely to offer employee training.
Benefitting Local Communities
As outlined in The ESOP Association’s testimony before Congress last week, we believe ESOPs are an ideal way to keep businesses in business and employees employed in the face of the looming retirement of 2.5 million business owners. Without viable buyers, many of these 2.5 million businesses will be shuttered. Others will be bought by competitors or private equity firms and carved up for their financial and physical assets—often leaving behind the human beings who work in these companies.
Too many business owners do not have successors positioned to take over the business; others have no succession plan at all. And some communities lack the capital required to purchase a business from a retiring owner.
ESOPs can overcome all these problems. In an ESOP:
- The successors are the employees—the same people who have helped build the business and know its customers, programs, and products better than anyone.
- The capital comes from the business itself, which takes out a loan to buy shares on behalf of employees. The loan is payed out using future company earnings, and all participating employees receive shares.