Study: Average ESOP Employee Has $134,000 Share of Company
The average worker at a US company with an Employee Stock Ownership Plan (ESOP) has accumulated $134,000 in wealth from his or her stake, according to new research.
The study comes from professors Joseph Blasi and Douglas Kruse of the Institute for the Study of Employee Ownership and Profit Sharing at the Rutgers School of Management and Labor Relations.
The data looks at the period between 1974, when Congress established the ESOP, through 2014. Amid that timespan, about 6,000 companies — most of which were family businesses — were sold to their employees using an ESOP. Those companies were valued at $7 billion and employed about two million people as of 2014.
The average worker in those companies had $134,000 in wealth from the stock, while workers who had remained with the company at least 20 years had “significantly higher wealth buildup,” the authors wrote.
This isn’t the first time Blasi and Kruse have sung the praises of ESOPs. An earlier study for the National Bureau of Economic Research written by the professors alongside Harvard’s Richard Freeman found that employee-owned companies tend to have higher productivity, lower employee turnover, and more commitment to the local economy. Similarly, a book co-authored by Kruse found that employee ownership can help protect jobs during economic downturns.
Blasi and Kruse both advised on the drafting of the Main Street Employee Ownership Act, a recently tabled bill that would make it easier for retiring business owners to sell to their employees through an ESOP or worker cooperative. With many baby boomers set to retire in what has been dubbed the “Silver Tsunami,” half of the nation’s small businesses are expected to change hands in the next decade. Senator Kirsten Gillibrand (D-NY), who announced the legislation, has said it could protect or save millions of jobs.
In a show of bipartisanship, the bill was co-sponsored by Sen. James Risch (R-Idaho), Chair of the Senate Committee on Small Business and Entrepreneurship; Sen. Ben Cardin (D-Md.), the Ranking Member; Sen. Cory Booker (D-N.J.); Sen. Susan Collins (R-Maine); Sen. Jeanne Shaheen (D-N.H.); and Sen. Todd Young (R- Ind.). The bill passed the U.S. House (H.R. 5236) with bipartisan support on May 1.
ESOP Pros — And Cons
Many other studies have touted the benefits of ESOPs. One study showed that employee-owners have more job stability than non-employee owners. Another showed that employee-owners are more confident in their financial future. Indeed, many MSPs have been opting for ESOP ownership plans of late. LJT & Associates decided to transition to an ESOP last year. More recently, QComp Technologies was acquired by OwnersEdge Inc, an ESOP holding company.
Still, for companies with inconsistent profits and poor financial controls in place, ESOPs can present some risks. Despite this, about 23,000 companies have adopted ESOPs since they became legal in 1974.