Let’s Learn About ESOPs
Employee Ownership: What's The Big Deal?
Employee ownership can be defined as a market-friendly, anti-inequality policy that improves outcomes for companies and provides workers with higher wages, more generous benefits, and greater job stability over time. It is one of the most impressive and rewarding structures possible which is why Brian and DeAnn opted for this when they prepared to retire. They wanted each person at Apex to continue to build the company and gain greater opportunities, financially and professionally. And because of this, the future is brighter than ever.
The primary form of employee ownership in the United States is the employee stock ownership plan or ESOP. Congress designed ESOPs in the 1970s to encourage owners of private companies to transfer ownership to employees at no cost to the employees themselves; instead, the owners are paid the full value of their shares by the ESOP, which borrows the money if necessary and repays the loan from company earnings.
Today, at 6,500 American companies, 10.5 million workers partially or wholly own their companies through this mechanism. Quantitative and qualitative research at the company level has shown that ESOP companies tend to grow faster and provide greater job stability than similar non-ESOP companies making ESOPs an effective tool to create and save jobs especially in vulnerable communities.
The results of a study conducted by the National Center for Employee Ownership (NCEO) revealed:
■Median household net wealth among respondents is 92% higher for employee- owners than for non-employee-owners. This disparity holds true for the great majority of subgroups analyzed, including single women, parents raising young children, non-college graduates, and workers of color.
■Employee-owners in this dataset have 33% higher median income from wages overall. This holds true at all wage levels ranging from a difference of $3,160 in annual wages for the lowest-paid employee-owners to an extra $5,000 for higher-wage workers.
■Employee-owners in this dataset have substantially more job stability than non- employee-owners: their median tenure with their current employer is 5.2 years, compared to 3.4 years for the non-employee-owners.
■For families with children ages 0 to 8 in their household, the employee-ownership advantage translates into median household net worth nearly twice that of those without employee ownership, nearly one full year of increased job stability, and $10,000 more in annual wages.
■Employee-owners of color in this data have 30% higher income from wages, 79% greater net household wealth, and median tenure in their current job 36% over non-employee-owners of color.
Additinally, a 2021 study by the NCEO with support from Employee-Owned S Corporations of America (ESCA) found that workers at S corporation ESOP companies had more retirement savings and more employer-side retirement contributions both before and during COVID-19, compared to companies offering only a 401(k) plan. S ESOP companies’ retirement contributions were 2.6 times that of companies offering only 401(k) plans. Additionally, the vast majority of total contributions to these ESOPs, 94%, were from employers, compared to 31% for 401(k) plans. Controlling for size, industry, and region, the study found that average S ESOP participant retirement balances were $67,000 higher than the comparison group. The study also found evidence that ESOP companies retained or created more jobs during 2020, again controlling for size, industry, and region.
A 2020 study conducted by the Rutgers School of Management and Labor Relations and the Employee Ownership Foundation found that employee owned companies outperformed non-employee owned companies in job retention, pay, and workplace health safety throughout the COVID-19 pandemic. The study found that ESOP companies were 3 to 4 times more likely to retain staff, less likely to make pay cuts (26.9% vs. 57.3%), and more likely to take protective measures against the spread of COVID-19 (98.3% vs. 88.9%).
This data is exciting for you and me. Working at Apex has already shown us that we have a well-built company with a great reputation, we’ve had consistent and healthy growth for a long time, and we get to work with our most committed and efficient team yet. Now, we get to add to this that our company will be part of building a brighter and even stronger company in our community for everyone involved.