Employee Ownership: A Surprisingly Bipartisan Solution to Inequality

A recent Oxfam report found that “the combined fortunes of the world’s five richest men have more than doubled to $869 billion since 2020, while 5 billion people have been made poorer.” The report makes a number of recommendations to help address the problem of wealth insecurity, one of which is supporting employee ownership.

That may seem like a stretch in today’s polarized political climate, but, in fact, employee ownership has the support in Congress of Sens. Bernie Sanders (I-Vt.), Tommy Tuberville (R-Ala.), Elizabeth Warren (D-Mass.), Ron Johnson (R-Wis.), and just about everyone in between. In fact, over the last 46 years, employee ownership has consistently been supported by virtually all members of both parties through a variety of tax and financial incentives.

There are 14 million employees in the most common form of employee ownership in the U.S., the Employee Stock Ownership Plan (ESOP). The average account value for these plans is $136,000 per employee, and much more for longer-tenured workers. ESOP-owned companies grow faster than their competition, lay people off at one-third to one-fifth the rate, and have far lower voluntary turnover.

By contrast, 50% of the private sector workforce is in no retirement plan at all, and half the households cannot put their hands on $1,000 in an emergency. While most ESOPs are in companies with 20-100 employees, the 100 largest ESOP-owned companies employ close to 700,000 people and include some of the largest companies in their fields.

It is not difficult to persuade legislators that this is a good idea, but there needs to be a real push to make people see it as an important idea.

There is a lot of conversation about income inequality, but this is only half the story. While real wages have been largely stagnant since the 1970s, returns on capital have been impressive. The Dow had only three digits in the 1970s and has five today. If more workers were owners, more families could afford to retire, to buy a home, to send their kids to college, and do all the other things only wealth can provide.

Broad-based employee ownership is one approach to economic opportunity that has wide political support, a demonstrated record of success, and great untapped potential. Employee-owned companies perform better, and their employees are much more economically secure. You would think pundits and politicians would be shouting from the rooftops about an idea that both works to improve people’s lives in meaningful ways and is politically feasible. But almost no one does.

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% 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 manage a transition in a way that preserves their business legacy. Congress has granted these plans and owners selling them significant tax benefits.

It is far past time for people to start talking about this. While Congress has provided generous tax support for ESOPs, there is more that needs to be done, especially in helping make more financing available and supporting outreach efforts to educate business owners about why ESOPs can be a good idea for their companies. The Worker Ownership Readiness and Knowledge Act (the “WORK Act”), for instance, passed in 2022 and would fund state employee ownership outreach programs, but it will need funding in the next congressional budget to become effective. The Employee Equity Investment Act would provide government-backed financing for companies to use ESOPs to buy out existing owners of closely held businesses. It has bipartisan support. State programs have been enacted in a number of states, but more are needed.

It is not difficult to persuade legislators that this is a good idea, but there needs to be a real push to make people see it as an important idea. That can happen if more voices are raised to support it.