The gap between rich and poor has widened in many countries over the past few decades and continues to expand. So here’s an idea: What if more companies allowed employees to own a share of the pie? Many economists and business experts think society would become more equitable if workers owned a stake in their companies. “Capital income is becoming much more important,”
Douglas Kruse, an economist and professor at Rutgers University in the U.S. state of New Jersey, told me. Capital income, as opposed to wages, refers to the economic returns, such as dividends or capital gains, that incur to someone holding shares. “An important part of the conversation on reducing inequality is to figure out how to get workers more of that capital income,” he said. Kruse believes that employee ownership could be one way to do that.
Workers can build wealth if their companies succeed.
In the United States in 2018, more than 6,000 companies offered Employee Share Ownership Plans (ESOPs), one of the main forms of employee ownership, according to the National Center for Employee Ownership (NCEO).
The more than 10 million participants in the plans were able to build wealth if their companies were successful and posted profits.
Employee ownership can come in various forms, but in general it means that an employee owns shares of stock in the company they work for. Some companies with ESOPs are owned entirely by workers. In other companies, employees together own only 5-10% of the stock.
Just as employee ownership comes in many forms, so does the payout. But the most common model in the United States, the ESOP, pays out shares at retirement or when the employee leaves the firm.
Tackling inequality by sharing ownership.
Employee ownership offers workers access to capital income. “For those who are not used to investments, there is certainly a learning curve, but it’s totally worth it,” Stefanie Tolhurst, an employee-owner and executive assistant at Beau’s All Natural Brewing Company, a Canadian brewery, told me.
Tolhurst says Beau’s provides support and education to employees who want to get involved in the company’s ESOP. The company is currently 16% employee-owned, and employees who have been with the company for a year can purchase shares each year during a designated “Buy and Sell” period.
There is evidence that workers at companies with share plans are better off financially. In a sample of workers aged 28 to 34, employees who owned shares of stock in the company they worked for had a 33% higher median income from wages and 92% higher median household wealth compared to non-employee-owners, according to NCEO research published in 2017.
Employee-owners were more likely to have access to childcare, retirement plans and tuition reimbursement, according to the data. Employees who own shares in the company they work for may even be more secure in their jobs. In 2015, the NCEO found that such employees were less likely to be laid off compared to non-employee-owners.
Employee ownership has bipartisan support.
Why would employee-owners receive more benefits and run a lower risk of being laid off? Because companies that offer ESOPs are generally quite successful and often have a different work culture. “There’s evidence that would suggest that they’re pretty good employers to begin with, because otherwise they would never have even thought of transitioning to employee ownership,” Nancy Wiefek, research director at the NCEO, said.
Employee ownership exists in many countries and has gained political traction in recent years, winning support from the UK Labour Party and from U.S. Senator Bernie Sanders, a former Democratic candidate for the presidency. Some politicians advocate requiring companies over a certain size to offer employees shares in the firm.
In the United States, which is deeply divided politically, employee ownership has proponents on both sides of the aisle. Senator Ron Johnson, a Republican, has introduced a bill that would give businesses that create or expand ESOPs access to federal grants. The bill is co-sponsored by a Democrat, Senator Tammy Baldwin. “On the conservative side, people are looking for an idea that encourages self-determination, personal responsibility, personal ownership,” Joseph Blasi, an economic sociologist and professor at Rutgers University, said. “On the liberal and progressive side, people are interested in addressing economic inequality, individuals having a share in what they produce, having a say in their workplace, in a more just economy, in a more responsible form of capitalism,” Blasi said.