Sens. Kirsten Gillbrand (D-N.Y.) and James Risch (R-Idaho) are about as blue state liberal and red state conservative opposites as they can be. But they are the prime sponsors of a bill, The Main Street Employee Ownership Act, that is based on nothing less than the notion that we should be rethinking capitalism in a way that makes more workers owners. On May 8, the House passed the bill on a voice vote, and its prospects are good in the Senate. The bill would direct the Small Business Administration to strengthen its loan program and outreach efforts for companies with Employee Stock Ownership Plans (ESOPs) and worker cooperatives. In itself, the bill is a small but important step. But it represents a larger concept that there are ways in this seemingly hopelessly divided landscape to take on major issues in a way we can all agree on.
Perhaps the biggest issue in the recent election was that while the economy may be working well for many people, it is not working well at all for many others. Finding common ground on ways to address this gap has been wrenchingly difficult. Higher minimum wages, changes in trade policies, and more job training can help, but only for a limited number of workers. None of these address a key root of the problem, namely that the growth of technology and capital has meant that owners of capital are reaping more and more of the gains in the economy relative to people working for them. While real wages have been stagnant since the 1970’s, and declining in recent years, returns to capital have been impressive. The Dow had only three digits in the 1970 and has five today.
Gillibrand and Risch, along with a group of bipartisan sponsors, argue employee ownership is one approach to our economic angst that has wide political support, a demonstrated record of success, and great untapped potential—broadening employee ownership. Comprehensive research shows it reduces layoffs dramatically, provides ordinary working people with substantial capital assets, and helps companies perform significantly better.
Employee ownership can involve employees buying stock, but most broad-based employee ownership in the U.S. allows working people to become owners without their having to cough up scarce dollars to do so. ESOPs, the major form of employee ownership, are funded by the company, almost always as an additional employee benefit. Over 90 percent of these plans are in closely held companies, where they are usually used as a means to provide for business transition, creating an ideal scenario for the wave of retiring baby boomer business owners who want to do a transition in a way that preserves their business legacy. Congress has granted these plans and owners selling to them significant tax benefits.
There are over 9,000 ESOPs and similar plans in the U.S. They cover 15 million people. They have over $1.3 trillion billion in assets. ESOPs are a major part of the U.S. economy, but one that essentially no significant public figure says much about.
Although there have been notable ESOP failures, such as at the Tribune Company and United Airlines, overall ESOPs have been strikingly successful. The General Social Survey reports that employee owners are one-third to one-fourth as likely to be laid off as employees who are not in these plans. ESOP companies grow about 2.5 percent per year faster than would have been expected without an ESOP, according to Rutgers researchers. Data from Department of Labor filings show that ESOP participants have about 2.5 times the retirement plan assets of non-ESOP employees and, over the 1990-2010 period, ESOP returns were 9.1 percent compared to 7.8 percent for 401(K) plans and were less volatile as well.
ESOPs are not the only way companies can share ownership widely. Companies like Google, Tesla, Starbucks, and many others grant stock options or similar rewards and/or significantly discounted stock purchase plans to all employees. Another several million employees own shares or rights to shares this way, and research shows that these companies also outperform their peers.
Minor changes in tax law would help ESOPs grow even faster, as would help from government agencies at all levels to let business owners know about and finance the idea, as the Gillibrand-Risch bill would do. What employee ownership needs most is political and opinion leaders to finally take it seriously.
Corey Rosen (email@example.com) is the founder and senior staff member of the National Center for Employee Ownership (www.nceo.org), a nonprofit membership, information, and research organization. The NCEO is not a lobbying organization.