The philosophy behind an Employee Stock Ownership Plan (ESOP) has three parts, according to ESOP advisors: broaden ownership of capital, create financial security and incentives, and urge better employee productivity. It is a wonder that ESOPs are not more prevalent with such a philosophy.
ESOPs are not new. The early makings of an ESOP began in 1921, but official ESOPs were not established until 1974. Now there are over 12,000 companies with ESOPs, meaning that roughly 11 million employees are employed by them. Despite such positive numbers, the term ESOP is not exactly a colloquial term, nor is employee ownership. In a sense, employee ownership seems to be a well-kept secret considering its lack of publicity.
In today’s world of social media, instant publicity is easy. But if you were to search for “Employee Ownership” on Facebook, for example, your search would return a few articles from The Economist or other news sources, along with organizations like the National Center for Employee Ownership or The ESOP Association — both with fewer than 700 likes. In this social media-driven world, less than 1,000 likes is virtual non-existence.
We need to raise awareness of employee ownership. One good reason is that research shows employee-owned companies to be 5 to 10 percent more productive than traditional companies. In the U.K., the retailer John Lewis is well-known for being 100 percent employee-owned, but in the U.S., you would be hard pressed to name an equivalent that is nationally-known and more than 50 percent employee-owned. Each September, the National Center for Employee Ownership publishes a list of the top 100 employee-owned companies in the U.S. But only a couple of names from the top 15 companies might be generally well-known, like Black & Veatch or Lifetouch.
These top 100 companies should start a social media initiative to broadcast their experience with employee ownership. Since a goal of employee ownership is to close the gap between labor and capital — or the upper and working classes — this could be an incentive for customers to support them. It would also be an educational opportunity for the general public to learn more about the benefits of employee ownership. Knowing the structure of an employee-owned company, along with the benefits, would be a huge draw for all levels of employees to seek out those opportunities themselves. The end goal of this would be to increase the economic standing of all employees, not just the top tier executives.
The U.K. government is a proponent of employee ownership, and they provide resources for the public on their website. They have published policy papers and new updates specifically about employee ownership to provide information and make employee ownership more transparent to the general populace. The U.S. should do something similar. With positive government encouragement like tax incentives readily available now, more companies and owners would be encouraged to investigate implementing employee ownership, if there was more publicity. The U.S. government offers capital gains tax incentives for sellers to employee-owned companies, and employee tax advantages exist as well, but these benefits could be publicized to a greater degree, hopefully convincing more owners and employers to switch to employee ownership.
Social media initiatives from employee-owned companies and more direct government support could boost employee ownership to a level that would benefit the economy as a whole. Then the philosophy of employee ownership could work to its full potential.
If you would like more information, or a way to promote employee ownership content, visit the National Center for Employee Ownership website (https://www.nceo.org). Also, you can visit its Facebook page (https://www.facebook.com/theNCEO). Another key website is the ESOP Association's (http://www.esopassociation.org/); and that association's Facebook page (https://www.facebook.com/ESOPAssociation?fref=ts).
John Hoffmire is director of the Impact Bond Fund at Saïd Business School at Oxford University and directs the Center on Business and Poverty at the Wisconsin School of Business at UW-Madison. He runs Progress Through Business, a nonprofit group promoting economic development. Krystal Bailey, Hoffmire’s colleague at Progress Through Business, did the research for this article.
John Hoffmire teaches at SaÏd Business School at the University of Oxford.