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Even large corporations should consider employee ownership. Here’s why
It’s not just for small businesses.
When confronting big economic challenges like inequality, poverty, or retirement insecurity, America’s leaders often struggle to agree on how—or even whether—government should act. Amid the gridlock and polarization, however, a surprising bipartisan consensus is forming around the promise of what some have described as one of the U.S. economy’s “best-kept secrets”: employee ownership.
Today, the most common way for everyday Americans to gain an ownership stake in the company where they work is through an Employee Stock Ownership Plan (ESOP), a type of defined contribution retirement plan that holds investments in the employer’s own stock. Alternative forms of employee ownership include worker cooperatives, or businesses that are owned and democratically managed by workers, as well as various other kinds of equity compensation, such as stock grants and stock options.
While ESOPs have been recognized under federal law for five decades and have long been supported with tax and other incentives at both the national and state levels, efforts to promote their use have gained newfound momentum. Last year, a group of congressional Democrats and Republicans introduced the Promotion and Expansion of Private Employee Ownership Act, which would enhance existing ESOP incentives as well as provide for more educational outreach and assistance to workers and business owners interested in setting up these plans.
Around the same time, the Department of Labor launched a new Employee Ownership Initiative after receiving overwhelming bipartisan authorization for it in 2022. As one top DOL official put it when the initiative was announced, not only can worker ownership be “good for business,” but it can also help to “empower the workers who fuel their employers’ ability to be successful day in, day out.”
Yet for those who are mostly unfamiliar with how employee ownership operates in practice, it may be hard to see how encouraging more businesses to adopt it would catalyze large-scale change. Perhaps mom-and-pop hardware stores or neighborhood bakeries could be run by their employees, but what about large corporations? After all, according to the U.S. Bureau of Labor Statistics, a majority of all workers who aren’t self-employed work for firms with at least 250 employees. What does an agenda of promoting employee ownership have to offer them?
Perhaps more than you think. Our research team at Rutgers University’s Institute for the Study of Employee Ownership and Profit Sharing recently partnered with Employee-Owned S Corporations of America to take a closer look at multinationals with different forms of employee ownership. We interviewed executives at seven different S corporation ESOP companies with a global footprint to learn about what they believe are the benefits that can come from taking steps to build a “culture of ownership.”
What we found was great enthusiasm among worker-owners at these firms for this alternative way of doing business, not only because of how it can allow everyone who contributes to creating value for the company to receive a meaningful slice of the pie, but also because of how it can boost productivity and thereby ensure that there is a larger pie to go around.
For instance, some discussed how workers who become worker-owners tend to adopt a broader perspective on how their contributions matter for the success of the business. Barbara Wight, CFO of the 100%-ESOP-owned Taylor Guitars in El Cajon, California, described how implementation of an international employee ownership program has led many individuals working at the company’s European subsidiary to show greater concern for “how the decisions that they make every day can really have an impact”—not just on their own segment of the business, but on the overall performance of the company.
Others emphasized the ways in which employee ownership can be a boon for recruiting and retaining talent. Susanna Mudge is former president and CEO and current chair of the board of Chemonics International, a global sustainable development firm headquartered in Washington, D.C., that includes many of its non-U.S. workers directly in a U.S. ESOP. She explained how her company relaunched operations in a South American country where it had not had local staff for several years, and was pleased to discover that former employees were “waiting to come on to the Chemonics project because they loved the way we treated our staff” during their earlier time there.
Although there are certain legal, regulatory, or cultural barriers that can make it challenging for companies to include non-U.S. workers in American employee ownership structures like ESOPs, there are many creative ways to preserve the link between compensation and corporate performance for those based abroad without running into such problems.
Black & Veatch, a Kansas-based engineering, procurement, consulting, and construction firm that has been 100% employee-owned since 2015, maintains a Global Ownership Plan for its non-U.S. workforce that involves grants of synthetic equity. Also known as “phantom stock,” these awards are designed to mirror the performance of the company’s actual equity shares and can be converted into cash after a fixed vesting period that aligns with the timeline for incurring any tax liability in that locale.
At a time when employee ownership has proven itself to have strong appeal across the political spectrum, our findings on multinational firms that are successfully putting it into practice clearly show that it can succeed at scale. Policies designed to share ownership more broadly could indeed benefit a large swath of American employees, regardless of where they work.
This “best-kept secret” may not remain a secret much longer.