Worker shortages, changing regulations, weakend supply chains and rising attention on working conditions and job quality have many businesses and workers reflecting this Labor Day on what lies ahead — and one time-tested model with bipartisan support could be a game-changer for workers and companies alike: Employee ownership.
In every industry today, employee-owned companies — from grocery stores such as WinCo and Publix to Gore, the manufacturers of Gore-Tex, and Southwest Airlines — are demonstrating the promising potential to grow successful businesses while improving workers’ lives. This model can take different forms, such as worker-owned cooperatives, Employee Stock Ownership Plans (ESOPs) and other types of profit sharing and equity compensation structures that provide workers the opportunity to own shares in their company.
Employee stock ownership plans, generally considered to be the largest form of broad-based employee ownership, cover 14 million workers or less than 10 percent of employed workers in the U.S. What employee ownership lacks in size, however, it makes up for in impact.
Employee-owned companies are associated with better pay and job stability for workers and firms with employee ownership are linked to higher productivity and greater resiliency to external shocks, including the recent pandemic. Employee stock ownership plans in particular offer workers a unique opportunity to build wealth and retirement savings at the same time. Research shows low- and moderate-income workers in these companies own shares worth nearly 10 times the savings of the average American household and that this model can be a powerful tool for helping to reduce race and gender wealth gaps.
Employee ownership also benefits communities. Led by Industrial Commons, communities such as Morganton, N.C., are using employee ownership as a strategy to revitalize industry and economic development to help decrease poverty and address historical inequities. Employee ownership also allows communities to weather economic headwinds and to build community assets and wealth, rather than having profits siphoned away to a distant location. Local owners who live in the community also make it more likely that the business takes community concerns into their decisions.
As people who study and invest in strategies to address poverty and improve jobs, we have seen and heard the impact employee ownership creates. When you talk to leaders and workers at employee owned companies, you hear stories of deep collaboration and people pulling together to make their company successful. People talk about their co-workers as family. They talk about the dignity the work offers and how the workplace is often participatory, where everyone’s voices and ideas are heard. You hear the pride as they talk about their company and their role as owner. And in many companies, you hear about the wealth and savings being an employee-owned company has offered them, and the impact that will have on their children and retirement. You hear these quintessential stories of the American dream, of people building communities and of entrepreneurs making our country better and more resilient.
Yet despite its benefits, awareness and knowledge of employee ownership remains a big challenge. Few business schools teach students about employee ownership. The Rutgers University’s School of Management and Labor Relations, the Beyster Institute at the Rady School of Business at University of California-San Diego are a few of a handful of exceptions.
Awareness is also low among business owners and their legal and financial advisers, but better knowledge and guidance could be especially effective for retiring business owners who are evaluating options to exit and sell their business. Strong expertise and resources could help guide business owners through a sale to their employees — leaving a lasting legacy of their leadership and a tremendous impact on employees’ futures.
Awareness, expertise and other assistance are needed now more than ever as a record wave of retirement hits. Baby boomers own over half of the small businesses in the U.S. and will transfer trillions in wealth as they retire in the coming years. Private equity, which has put an increasing focus on purchasing small and local businesses, is aiming to capture much of this wealth and is often in competition with employee ownership.
As the retirement of baby boomers plays out in the coming years, policymakers have a unique opportunity to overcome these challenges and support the growth of employee ownership. States such Colorado and Washington have already developed and passed new legislation to support and incentivize retiring business owners to sell to their workers.
State centers of employee ownership are also emerging across the country to help get the word out about employee ownership and to support businesses in converting. The recently passed WORK Act is designed to help grow more of those centers, but money has not yet been appropriated to support that work. Other policies have also been introduced to make it easier for retiring business owners to sell to their workers.
Policies such as the WORK Act and the Main Street Employee Ownership Act are an important step forward for bipartisanship and helping support employee ownership. As we celebrate Labor Day, we should recognize the contributions of American workers by giving more of them a stake in ownership so they can earn a greater return on the fruits of their labor and have more freedom and agency over their work and economic future. This bipartisan solution promises a multitude of benefits for families, businesses and communities alike, and would encourage the development of a workforce that forms a strong foundation of economic strength.
Jeanne Wardford is program officer for Family Economic Security at the W.K. Kellogg Foundationand Matt Helmer is associate director at the Aspen Institute Economic Opportunities Program.