This document discusses employee ownership and how giving workers ownership stakes in their companies through stock ownership plans can benefit both the employees and the economy. It provides examples of successfully employee-owned companies like Publix and WinCo and outlines the advantages of this model, such as greater retirement savings, higher compensation, and improved company performance. Employee ownership plans like ESOPs can provide tax benefits to companies and increase employees' financial security while boosting the overall economy through higher buying power and business success.

1. when a company becomes successful the employer's financial
rewards are commonly dispersed among a very few, like the
CEO and top management.This scenario is bad for employee
morale and can hurt our economy.
A solution could be to give workers a financial stake in their
company's assets. Owning stock in their company gives an
employee a better chance of building financial security. Louis
Kelso, an economist who invented the ESOP (Employee Stock
Ownership Plan) argued that employee owned companies are
better for the economy. In his own words, "for more
capitalism to survive, there needs to be more capitalists".
What is Employee Ownership?
It refers to company that is owned
by some or all of its employees. A
formal plan is drawn up which
compensates each of the employees
through owning stock.The company
structure does not change.
Employee-owners are not given an increased role in
management and decision making but research has shown that
the companies who promote a culture of “thinking and acting
Headquarters of Gardeners’ Guild, a Richmond based employee-owned landscape contractor. Photo courtesy of Gardeners’ Guild.
Experts agree that owning assets is a key
differentiator between the wealthy and lower
income earners. The assets we are referring to
are real estate, a business or a stock portfolio.
It's not enough to rely on take-home pay to grow one's net
worth, especially in our current economy, where for the last
Is Employee
Ownership
right for your
company?
ten years wages have stagnated. In fact, the average middle
income family only earns 11% more than it did in 1980, while
consumer prices have risen roughly 155%.*
Productive employees are the lifeblood of any business, but
like owners” are more successful.
The most popular and successful vehicle for compensating
employees is called an ESOP (Employee Stock Ownership
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2. Continued from page 13
Plan). An ESOP is essentially a retirement plan that invests in
the company and holds its assets in a trust. Employees don't
directly own the stock, but upon leaving it is paid to them.
ESOPs are more prevalent with private, not publicly traded
companies.
Other employee ownership plans include a “stock option”
plan. which permits employees to purchase company stock at
a specified price during a predetermined period. An
employee stock purchase plan (ESPP) is another plan similar
to a stock option plan. Employees have the option to
purchase stock through payroll deductions and usually at a
discount.
The Employee Ownership Foundation sponsors a survey
every four years that gathers new information about
employee ownership in the United States.The latest survey
(2010) found that approximately 30% of our private sector
companies offer some kind of stock ownership.
A cooperative is another employee ownership model.These
companies do not offer stock, but each employee has an
equal voice in all policy decisions.This type of plan is more
common for small companies.
History
The concept of employees owning stock in the company they
work for is long established in our country's history. It dates
as far back as the 1862 Homestead Act which made land
ownership more accessible to the masses. In that century,
leaders of companies such as Procter & Gamble, Sears &
Roebuck and Railway Express believed that when a long term
employee reached old age they deserved an income.
The 1920's has been called the largest experiment in
employee stock ownership anywhere in the world. 1929 was
a peak in the trend when more than a million workers owned
shares in their companies with a collective stake worth $1.5
billion. Business and government supported the idea as a way
to diffuse the tension between capital and labor.
Unfortunately 90% of employee stock plans were terminated
subsequent to the great depression of 1929.
Notable Employee Owned Companies
In a book published in 2013 called The Citizen's Share,
authors Joseph Blasi, Douglas Kruse and Richard Freeman
assert that on average, firms that give their employees an
Richmond landscape contractor, Gardeners' Guild, was
founded in 1972. It grew steadily from a one-truck operation
to nearly one hundred employees by the mid 1990's. Owner
Linda Novy had begun to explore an exit strategy to secure
the future of the company she had nurtured for the last
twenty years.
After considering several options it became clear that
employee ownership best complemented the unique
corporate culture Novy fostered. Management quickly
embraced the idea and the company began the process of
transitioning to an ESOP (Employee Stock Ownership Plan)
The first step was hiring an experienced ESOP attorney to
navigate Gardeners' Guild through the complexities of federal
regulations. Next, a professional was brought in to perform an
independent fair market appraisal of the company to
determine a selling price. An administrator, who would handle
the annual reporting and allocation of stock values, was also
engaged.
On December 23rd1997, after six long months, a deal was
inked. Gardeners' Guild employees were forty percent
owners! It was phase one of a ten year plan to achieve 100%
ownership. As the company prospered, additional funds would
be available to progressively purchase Novy's stock. As a
matter of fact, the ensuing years were sufficiently profitable
allowing Gardeners' Guild to achieve its goal in half the time.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CompanyVice-President, Mike
Davidson talks about how employee
ownership has changed the company:
"First, I would say that it required us to
raise our game with regard to financial
reporting and forecasting. It made us a
better company in the sense of
proactive planning, investing in
employee training and cash flow
management."
"Being an ESOP does not happen without a considerable
effort. And, at the same time, our ownership culture has
helped us to weather challenges as well as enjoy successes."
"What sets us apart, and makes us so proud of being an ESOP
is that the opportunity does not require our employee to
invest a dime. Having a stake in our company's fortunes has a
direct impact on our performance and commitment."
SNAPSHOT:
Gardeners' Guild, ESOP based in Richmond
Mike Davidson, VP
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3. ownership stake are more productive and innovative
workplaces.
In 2000 two of the above authors conducted the most
important study to date on private ESOP companies.They
found this model to increase sales and employment by 2.3 -
2.4% per year over what would have been expected minus
ESOP.
Success stories include Florida based giant grocer, Publix.They
have an employee ownership fund controlling 80% of the
company. WinCo, a fast growing discount grocery chain based
in Idaho is a 100% employee owned company and rapidly
encroaching on Walmart's turf.
Some bay area employee owned firms include Recology, a San
Francisco based resource recovery company, Sleeptrain,
Skyline Construction, Jackson Hardware, San Rafael; and
Gardeners' Guild, Inc. Landscape Contractor, in Richmond.
possibly two, a valuation expert and a trustee.
A business also needs to be prepared to share its financials
with employees, at least annually if not more frequently.
Educating employees to read their company's financials is a
one step toward fostering an "ownership" mindset.
There is another important consideration for a company
preparing to become an ESOP. When a departing owner
considers selling its shares to the employees, they will want to
ensure their company's future success by identifying and
training its next generation of managers.**
Advantages of Employee Owned Companies and how they
benefit the economy
The NECO (National Center for Employee Ownership)
recounts some of these positive results of academic studies:
Employee-owners have 2.5 times greater retirement accounts,
receive 5%-12% more in compensation and four times less
likely to be laid off. ESOP companies are 25% more likely to
stay in business.
ESOP's in particular, have significant tax benefits. Most
important – employer contributions are generally tax
deductible and dividends paid on ESOP held stock can be
deducted.
There is ample evidence touting the benefits of employee
owned companies. A business enjoys tax breaks; their
employees increased financial security.Workers' increased
buying power and the company's success improve the
economy. But, what seems to be the most powerful driver for
overall success is what happens when these companies
successfully adopt an ownership culture.When an employee is
empowered to "feel" like an owner, there is a marked
progression in loyalty, job satisfaction and commitment.
SOURCES:
National Center for Employee Ownership (NCEO)
The ESOP Association
Employee Ownership Foundation:
www.employeeownershipfoundation.org/history
Time Magazine
Ownership California: www.ownershipcalifornia.org/culture
* CNN Money
** NYTimes
Is an ESOP for you?
It takes sufficient capital and commitment to a rigorous
process to set up an ESOP, the most popular model for an
employee owned company.The investment can cost upwards
of $250,000 to establish. Some additional costs include extra
tax returns and annual valuations.
The company will also need to hire professionals to assist
them in setting up the ESOP.They include have a lawyer,
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