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Employee Ownership Yields Big Dividends

by Francis P. Koster, Ed.D.

Suppose you were unemployed and had a family to feed. After months of looking, you are offered two jobs, and have to choose. Both were with new companies founded by neighborhood entrepreneurs. One offered a standard wage, regular hours, and so forth. The other offered the same things, but added the requirement that all employees own  shares of stock in the new company.  Years later which one would have contributed to making your family economically secure?  Which one would you enjoy working at the most?  Which one would strengthen the local economy?

The bottom line is that when employees own significant amounts of stock in a company, and participate in its management, the company has their sales and payroll grow 30% faster over ten years than if the employees do not have a piece of the action[1].

When employee owned companies are compared to publicly held companies of similar size and age in the same industries, they are found to be 10% more profitable,[2]  wages are 5-12% higher,[3] and retirement plan assets are 2.6 times greater.[4] 

When it comes to layoffs,  non-employee owned companies laid off their workers at four  times the rate of employee owned companies.[5]  Also, unionized firms with significant employee ownership of shares have fewer strikes.[6] (After all, who wants to go on strike against themselves?)

A Canadian study found that worker owned economic enterprises of all sizes had a business failure rate roughly half that of non-worker owned.[7]

I am not talking about some company where an employee can have the option to buy a few shares in their retirement account.  I am talking about large companies (including those on the stock market) where employees own the majority of shares, or smaller companies of less than 40  with all shares owned by the workers.  In both of these cases, it is easier to establish  what is sometimes called an "employee owned culture".  This results in  improving performance through structured meetings and input that mine the insights of the employee/owners.

While employee ownership stakes can be a significant factor in helping young or small  companies survive, it does not limit growth potential.  Examples of companies where employees are majority employee-owned show up in the "The 100 Best Companies To Work For In America" lists, (in fact, one in ten of the winners is majority employee owned!).[8] Those include Publix Supermarkets, Men's Wearhouse, and Proctor & Gamble.[9] 

One of the advantages of smaller business involving employees in ownership is that those companies stay rooted where they were planted. If various forms of state and local incentives are used, those granting them (and facing re-election challenges) can know that the company they are supporting would be more likely to survive and stick around if it is owned at least in part by local workers.

A wonderful economic development tool now spread all across the United States are Business Incubators, or Business Accelerators.  Many are sponsored in part by local education institutions or political entities like cities or counties.  I was surprised to find that of the approximately 1500 Incubators[10] only a handful appear to be focused on employee ownership.[11]

If your town is trying to improve its local economy, and has business incubators or other forms of sponsorship to new companies, you could clearly help us all out by introducing them to the facts outlined above.  You can also tell them about the Ohio Employee Ownership Center at Kent State University, and the National Center for Employee Ownership in Oakland, California, both of which have much more information available.

Part of America’s DNA is the admiration for small business people who "make it" ….starting in the proverbial garage, hiring some friends, and ramping up by hiring more. Creating  new employment is now more than a talking point - it is a mission vital to the future of our families and country.  The data clearly shows  sharing ownership of the new companies with the workforce supports that mission.

We can invent a better future if as a society we just use existing knowledge. Will you help spread the word about how we can do help others do good and do well?

To see the sources of facts in this article, and learn of other successful money and life saving programs that can be installed locally to create a better future for our country, visit www.TheOptimisticFuturist.org

 

[1]http://www.nceo.org/articles/research-employee-ownership-corporate-performance - see 2000 Rutgers study.

[2]The ESOP Performance Puzzle in Public Companies," Fall 2006 issue of the Journal of Employee Ownership Law and Finance

[8]http://www.nceo.org/articles/research-employee-ownership-corporate-performance

[11] Derived from several phone conversations with experts who could not name but two or three.

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