Celebrating ESOP Month

Pop Quiz: What do Paul Ryan and Bernie Sanders have in common? At first glance it may seem that there isn’t anything these two seemingly polar opposite viewpoint politicians could agree on. Well, in fact, there is. Both of these individuals, who hail from two separate political parties and grew up in states that couldn’t be more different, are, you guessed it, ESOP champions. Bernie Sanders’ message has gone so far as to say that employee ownership should be important national policy. What? Is this the secret sauce that separates the good from the bad, the right from the wrong, the up from the down, the….okay you get my point. Perhaps there is more to this underutilized, underappreciated and under…well….understood benefit than meets the eye.

 

October is Employee Ownership Month, and as an employee-owned, ESOP company for 24 years, we took this opportunity to look more closely at just what impact this qualified employee benefit has on our employees/families, our clients, our local community and the greater good. Could this be as far reaching as all of that? Perhaps. Consequently, it seems surprising that only about 10% of the private sector offers an ESOP to employees.

 

According to numerous research studies, including a paper presented by the National Bureau of Economic Research, employees who work for ESOP firms experience increased motivation, productivity, innovation, loyalty, wellbeing, trust, pride and ownership in their work. Employees who have this type of experience at work are less likely to leave their company, which tends to lead to employers maintaining and growing their internal knowledge base and competencies. This means GRAEF is better positioned to meet our clients’ uniquely individualized needs, increase employer and client profitability, and retain the local government tax base.

 

Employee owned, ESOP companies like GRAEF also increase community stability compared to their non-ESOP counterparts. These other firms often have nonexistent or incomplete plans for business continuity after the departure of the founder or major shareholders. In contrast, GRAEF and other ESOP companies have a mechanism that allows them to transition relatively seamlessly, which benefits employees, clients, and communities.

 

One research study conducted by Rutgers University consisted of over a decade of following and comparing 1,100 ESOP companies with 1,100 comparable non-ESOP. They found “overwhelming positive and remarkable results indicating that ESOPs appear to increase sales, employment, and sales/employee by about 2.3% to 2.4% over what would have been anticipated absent an ESOP.” Additionally, ESOP companies stayed in business longer than non-ESOP companies. They survived and continued operating independently by higher percentages.

 

So, all this is from a micro economics perspective, but what about “the greater good?” The research goes into two levels of impact: the federal government and shared capitalism levels. I know, deep stuff! Data from the most prestigious social survey in the U.S., the General Social Survey (GSS), showed employees in the U.S. who had employee stock ownership were four times less likely to be laid off during the Great Recession than employees without ESOPs, saving the US government billions of dollars. As for shared capitalism, it is considered to be a significant part of the U.S. economic model. Shared capitalism can increase wealth for workers at lower and middle income levels. Many studies and research papers have concluded that ESOPs are effective in addressing issues of distribution of wealth, wealth creation and average employee pay.

 

Sounds like the greater good to me.

 

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