According to the survey, two-thirds of the ESOP millennials expect to retire at or before age 65, twice the number at non-ESOP companies. Some 56% of millennial workers at ESOP companies had at least six months’ salary saved for retirement, while 66% of millennials at non-ESOP companies had no savings at all..

Millennial employee-owners also reported feeling more positive about their jobs. About 80% reported having a personal stake in the company’s success and 72% said they saw opportunities for their own growth in the business, compared to 41% and 50% respectively for their peers in other businesses.

The survey was conducted in July and August 2019 by John Zogby Strategies. It surveyed 402 non-ESOP and 203 ESOP millennial and Gen Z employees. For full results, click here.

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In December 2018, NCEO researchers Nancy Wiefek and Nathan Nicholson released a study of how ESOPs in S corporations affect workers’ retirement security. The bottom line? Very, very positively. Here’s how the authors summarize their conclusions:

• ESOP participants represented in this survey have more than twice the average total retirement balance of Americans nationally: $170,326 versus $80,339.
• This is not just a function of higher-wage ESOP employees driving the average up. ESOP employees making less than $25,000 a year also have on average more than double the retirement savings ($55,526) compared to similar workers nationally ($22,447).
• Nearly all of the respondent companies (97%) offer at least one other retirement plan in addition to the ESOP. By contrast, 32% of all workers in the U.S. workforce as a whole do not have access to any retirement benefits at work, and 49% of all workers are not participating in the plan that is available to them.
• Additionally, these S corporation ESOP companies provide an array of benefits at levels solidly higher than firms overall where comparison data exist. These benefits make their own contribution to retirement security because workers are less likely to have to dip into savings for critical investments or expenses, such as tuition, to advance their career or unexpected medical expenses.
• Among the surveyed S ESOPs, workers nearing retirement have on average a median account balance of $147,522 in their ESOP plus $98,974 in a non-ESOP plan(s). By contrast, more than one-third (35%) of all workers nearing retirement have neither retirement savings nor a defined benefit pension. This percentage rises to 50% among low-income workers in this age bracket.
• National data place the median account balance of all U.S. workers 55-64 years old at zero. Even among workers who have retirement accounts, the median balance nationally is $100,000.
• A typical millennial worker (25-34 years old) at a surveyed S ESOP company has a median ESOP account balance of $22,588 and a median balance of $11,239 in a non-ESOP account. In contrast, the median savings of U.S. millennials is zero.
• Among the surveyed S ESOPs, lower-wage employees ($10.00 to $12.85 per hour) typically have median account balances in their ESOP of $4,381 and in a non-ESOP plan of $2,149. In contrast, nationally, 56% of workers in this category do not have access to any retirement benefits at work. This translates into a median savings for this group of zero.
• Finally, ESOPs are clearly associated with reduced turnover. Respondent companies report quit and separation rates that are more than two times lower than national rates.

Most of the respondent companies are large (more than 1,000 employees) and 100% owned by their ESOPs. It is important to keep in mind that respondents self-selected to take part in the survey and cannot be considered a representative sample of all S corporation ESOPs. Still, the demographics of the respondents are not limited to just one industry, size, location, or performance category. More importantly, the strength of the findings reported here, even if on the highest end of the continuum, are more than enough evidence to point to the power of S ESOPs for all workers, not just the highest earners.

The full report is available here.

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Most of the economic-reform proposals you hear these days focus on redistribution, which mostly means taxing the rich and providing benefits to the poor. Redistribution is the traditional approach to redressing the ills of a market economy. It exists in some measure in every advanced nation. Liberals and conservatives argue over how extensive it should be.

These debates need to happen, and right now the fledgling Democratic candidates are leading them. But no one should underestimate either their contentiousness or their complexity.

The rich, for example, do not want to be taxed any more than they are. (Some have found ways around existing taxes.) They and their allies in Congress will fight bloody battles against increases. They will also raise legitimate and difficult questions. What about capital gains taxes? The carried interest loophole? Estate taxes? What about the proverbial family farm, which is a stand-in for successful small businesses? Would stiff taxation discourage entrepreneurship? What would keep wealthy individuals from turning themselves into corporations, as many did in the past?

Benefits for the poor bring their own complexities. Programs like Medicaid and food stamps are means-tested: you’re eligible only if your income falls below a certain line. This fact always presents what policy wonks call a cliff issue. If the benefits fall to zero above that line, the policy engenders fierce resentment from those just above the line (“Why should those people get stuff for free when we don’t get a dime?”). The abrupt cutoff also seems to discourage poor people from working to raise their income, lest they lose their benefits. Legislators can mitigate these objections by phasing out benefits stepwise as people go up the income scale. But then the policies turn out to be inordinately expensive.

Right now, it’s hard to imagine our divided Congress implementing any serious changes on either the taxation or the benefits end of redistribution. That shouldn’t discourage reformers from trying. But neither should they expect quick results.

The alternative, says political scientist Jacob Hacker of Yale University, is to “focus on market reforms that encourage a more equal distribution of economic power and rewards even before government collects taxes or pays out benefits.” Hacker coined the term predistribution to describe such reforms.

What might they be? So far, advocates of predistribution have dealt more in generalities than specifics. Hacker himself emphasizes public investment, full employment, and labor-market reforms. Political scientist Steven K. Vogel, writing in the New York Times, mentions Elizabeth Warren’s Accountable Capitalism Act, financial regulation, and antitrust. Others focus on minimum wage laws.

Unions, of course, represent a prime example of predistribution: when unions were strong, they forced wages up for large numbers of blue-collar employees. That contributed to the relatively low inequality of the postwar decades. Some progressives want to strengthen unions by introducing industry-level collective bargaining and national wage boards on the European model. Like the more radical taxation-and-benefits proposals, this too has a long way to go before a US Congress would even entertain the idea.

Meanwhile, there is a powerful, bipartisan path to predistribution waiting in the wings: employee ownership. Ownership puts more money into the hands of workers. It allows employees to build wealth. It creates companies that consider employees’ interests on a par with the interests of shareholders, because they are one and the same. It has traditionally had widespread support on both sides of the aisle.

Employee ownership can’t take the place of redistribution, because it does nothing for people who don’t have a job. It’s a complement, not a substitute. But it’s surely one of the most powerful vehicles we can think of to make our economy more inclusive than it is now. And it requires no great expense on the part of the government.

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Take an armchair excursion into NCEO’s latest list of the nation’s 100 largest employee-owned companies, for example, and you see at a glance how widely applicable the concept is.

Begin the tour in the south. There you’ll find companies like Georgia-based Farmers Home Furniture, 220 stores and more than 1,700 employees, and Louisiana’s Acadian Ambulance, with six divisions and 4,000 employees. And of course there’s giant Publix Super Markets (nearly 1,200 stores and more than 190,000 employees), which operates in Florida and other southeastern states.

Up north, you might come across Thrifty White Pharmacy, with 1,800 employees and 96 locations in Minnesota and environs—”committed to providing healthcare to small towns and cities in the rural midwest.” Or maybe Washington-based EmpRes Healthcare Management (10,000 employees), which offers “skilled nursing, assisted living, home health, hospice, and home care services in 7 states across the western United States.”

In the east you could discover companies such as New York’s Cooperative Home Care Associates (2,000 employees) and KPH Healthcare Services (3,860), also in New York. In the west you’d see the likes of WinCo Foods (20,000), the Idaho-based supermarket chain, and Armstrong Garden Centers (1,500), in southern California.

All the companies just mentioned happen to be in retailing or healthcare, two significant categories for employee ownership. But there are equally large numbers of manufacturers, engineering firms, and other service companies on the list.

Take Amsted Industries, headquartered in Chicago, with 18,000 employees in about 50 facilities, spread over 11 countries. Amsted makes industrial components for the railroad, vehicular, and construction and building markets. Forbes has named it one of the best large employers in the nation.

Other big manufacturers include W.L. Gore & Associates (9.600 employees), Krueger International (3,000) and Challenge Manufacturing Co. (3,000). Among the engineering firms are such well-known names as Parsons (14,000), Black & Veatch (10,420), and HDR Inc. (10,000).

To make the list, a company must be at least 50% employee owned. Publix is ranked #1; tied for #99 and #100 are FBG Service Corp., a Nebraska company that provides facilities maintenance, and Michigan-based manufacturer Royal Technologies, each with 1,250 employees.

Employee-owned companies still account for a small fraction of the US economy. But they’re everywhere you look, and most are thriving. Don’t let anybody tell you that they’re only for the granola-and-granny-glasses set.

The post NCEO List Shows It: Employee-Owned Companies Are Everywhere appeared first on Employee Owned America.

Chris Mackin

(EOA contributing editor Christopher Mackin writes on “Silicon Valley and the Quest for a Utopian Workplace” in the New Republic here. Among other points, Mackin examines how to ensure a voice in the workplace for employees–and identifies a huge opportunity for tech company founders. A brief excerpt:)

Skeptics might ask: Why insist upon new platforms to mediate the conversation between employers and employees, between leaders and led? Why not rely upon good old-fashioned union representation for these companies? Isn’t that sufficient workplace democracy?

To begin with, collective bargaining rules were adopted in the 1930s for an industrial workforce, and these rules make little sense in the current environment. Engineers and other management personnel were very likely signers of the recent Google petition, along with others lower in the corporate hierarchy. Traditional oppositional unionism that draws lines based upon organizational roles blunts the ability for healthy internal debate based upon the merits of a point of view. Employee perspectives are not necessarily dictated by their functional roles.

Furthermore, many employees who want a voice, and who want to debate about what is going on at their company, do not necessarily wish to demonize their bosses or their company. They reject the idea of working in an environment of perpetual organizational cynicism where the “other side” is always presumed wrong or less than honorable. The legal requirement placed upon unions to strictly follow the interests of a narrow bargaining unit is particularly corrosive to the cause of providing a collective voice at work.

So what alternatives exist? The answer ultimately lies in the law, and in structures for voice that allow for differences of opinion to be shared without fear or favor….

[One] approach would be the creation of legal trusts at the individual enterprise level that would give employees a collective seat at the ownership table. One of the largest employers in the U.K., the John Lewis Partnership and its Waitrose division, employs roughly 95,000 people and is entirely owned by such a trust. A number of British engineering and consulting firms, such as Arup Group, also operate under trust ownership. In the United States, 7,000 companies are owned in full or in part by Employee Stock Ownership Trusts, better known as Employee Stock Ownership Plans or ESOPs. Though mostly privately held, these include some large companies.

Large publicly-traded employers like Google or Tesla could grant employees significant shareholding stakes through these trusts, with or without federal tax assistance. In order for this to happen, however, leading shareholders, and especially company founders, will have to be persuaded, either from within or without, on both practical and moral grounds that employees at these companies need a permanent and independent voice, i.e. a “seat at the table,” and that these structures are the best route to achieving that end. Such trusts should hold a permanent percentage of stock that puts them in the ranks of major shareholders. Founders could signal their seriousness by committing to a right of first refusal on the future sale of their personal stock to these trusts.

Employee stock ownership is not a new idea in modern corporate settings. Where it is used, however, holdings are often extremely modest and employee voice is usually not encouraged or even contemplated. Commonly used stock option plans are presented and perceived by employees as mere compensation, not a tool for collective voice or power sharing. The primary purpose of these trusts, however, is to proactively include employees in the affairs of companies as organizational citizens. They will ultimately also lead to significant wealth-sharing between employers and employees who hold stock in those trusts.

Two additional ideas fit into this conversation. First, it is clear that the financial value of the shareholdings of founders of these utopian corporations, many of which are based in Silicon Valley (though an older East Coast utopian called Michael Bloomberg also comes to mind), far outstrips what they, their personal foundations, or their lineal descendants could practically need. These trusts will not beggar their families or their favorite charitable pursuits. Gifts of stock to favorite charities can, in fact, be monetized by encouraging those charities to sell stock back to these trusts.

Second, there is the matter of passing the organizational torch. Company founders can continue feudal-like traditions and pass on the ownership and governance of their companies to a select few, or they can set in place institutional structures that would allow the cultivation of a genuinely democratic workplace culture that breaks free from the human rental relationship that stains so much of the modern economy.

Here, a much-neglected philanthropic fact also needs to be surfaced. The most significant charitable gift that wealthy business founders can realize lies hidden in plain sight: in the community of largely disenfranchised workers and managers whose original efforts helped to create the founder’s fortune. The disenfranchisement of wage and salaried employees can be reversed by installing permanent employee stakeholder trusts….

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Senator Elizabeth Warren’s recently introduced Accountable Capitalism Act is an American version of the German system of codetermination with respect to employees. It also includes a broader buzz about stakeholders and benefit corporations that would amount to little more than a hard-to-enforce new mission statement for big companies. Still, discussion of the proposal may raise a new set of workplace issues that are now largely lacking from public discourse.

But there’s more opportunity here than Warren seems to recognize.

German codetermination was installed by the Allied occupation after WWII as part of the denazification of ownership in the coal and steel industry. Its purpose was to give not just “labor” but the labor unions a seat at the table to discourage any communist tendencies. The relatively strong law of 1951 for the coal and steel industries was later extended in a much less significant form to other large companies. The net effect over the years seems to have been mild.

David Ellerman

Senator Warren’s call for up to 40% employee representation on a company’s board is not directly comparable to the German case. German companies have a two-board system, and the minority employee representation spelled out in the law applies only to the Supervisory Board, which is largely concerned with personnel and social issues. As for the economic issues controlled by the Management Board, labor has at most a single seat, more for informational purposes. The application of codetermination to the larger German companies outside of coal and steel had no specific connection to labor unions (unlike the original 1951 law); it was based on a much older idea in German history of the “working community” of the enterprise.

In neither the original 1951 law nor in its later counterparts did German codetermination include an employee ownership component. Ownership was and is considered the sole province of the German employers.

In the United States, major corporations are far from being a conquered power; they are more like a conquering power. So I would be most surprised if the bill’s proposal of 40% board seats for employees went anywhere—although corporate managers might like the idea of being accountable in theory to everyone (“stakeholders”) and not to anyone in particular (i.e., shareholders).

Unlike in Germany, the idea that a company’s workforce is part of a “working community” is neither a prominent part of American culture nor a part of the Anglo-American system of corporate governance. Indeed, the Warren Act introduces employees as only one among several varieties of stakeholders—people who are affected by the company, like consumers or local community residents—instead of the people who are the company as an organization. The American narrative has been much more centered around the notion of ownership.

Like the codetermination laws in Germany, however, the Warren Act ignores the issue of employee ownership. In particular, it ignores the whole ESOP movement, instead of using that movement’s broad support in Congress to push for some kind of mandatory non-trivial ESOP in public companies of a certain size. With share ownership widely dispersed, even a relatively small-percent ESOP could be quite significant in terms of its effect on employee wealth and clout for one or more board seats.

ESOPs have been quite successful in conversions of small and medium-size family companies. Hence, the question might be how to legislatively sponsor a similar movement for large public companies—instead of trying to legislate a major change in US corporate governance that is independent of ownership and has little basis in American culture or history.

One angle is to connect, as the Warren Act does, to the scandal of companies using share buybacks to manipulate share prices to get management’s stock options in the money. Such direct share buybacks could be outlawed, and companies could instead be required to go through a mandatory ESOP. That is, instead of $X being used to buy back shares out of post-tax income, the same amount would be contributed to the ESOP as a deductible expense. The ESOP would then use it to buy $X of shares off the market and credit them to employee share accounts instead of retiring them to the company treasury.

Another approach would just be to require public companies of certain size to commit to guarantee a series of ESOP loans and pay them off as usual through the ESOP, so that the ESOP would have a certain percent ownership within some given number of years.

These and other ways of getting employee board seats and concomitant employee ownership in large public companies would garner support from both sides of the aisle, and would stand a much better chance than Warren’s current proposal of actually changing American corporate governance.

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High-technology companies often rely on federal support, particularly for early-stage funding. “Every year the federal government spends billions of dollars to support private-sector tech firms,” writes Karla Walter in a recent white paper from the Center for American Progress, a DC think tank. “This includes government-backed venture capital loans; grants and technical assistance for small businesses; and patented government technologies provided to emerging companies at no upfront cost.” (You can find the white paper here.)

An example? Apple’s Siri “was developed with support from the Defense Advanced Research Projects Agency. Researchers at the Stanford Research Institute (SRI) led the project that received $150 million from the federal government over five years. Siri was a startup company that broke off from SRI and was acquired by Apple in 2010.”

This kind of government support—meaning taxpayer support—helps enrich a handful of people at the top of every successful company. But it does nothing for the rest of the company’s workforce.

That, Walter argues, has to change. The government could start requiring every business that receives federal support to set up a broad-based share ownership program, such as stock option awards or an ESOP. Such a program would spread the wealth and put the government’s imprimatur on widespread share ownership.

The tech industry, Walter notes, was once at the forefront of providing broad-based ownership to its employees. But it no longer is—now, it’s usually only the executives and the top programming talent who get shares. But the federal government can change this. “Adoption of the policy outlined in this report would not only benefit workers and companies in the technology sector, but it also could lead to positive changes for workers throughout the economy as other industries emulate the sector’s culture and practices.”

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“Good jobs” in this lexicon usually refers to good jobs for non-college workers, and it nearly always means factory jobs. The kind of job that paid (say) $30 an hour, supplemented with great benefits and a high degree of job security.

What people often forget is that these manufacturing jobs were so good because they were unionized. It’s largely thanks to the United Auto Workers, the United Steel Workers, and their compatriots that blue-collar jobs paid so well.

But unions today are weak and unpopular—and anyway, manufacturing jobs aren’t coming back any time soon. Most new plants these days have more robots than human beings. And if you do manage to land a factory job, chances are you’ll be paid less than the veterans because of two-tier wage scales.

So what makes for a good job for non-college workers in today’s economy? As an article in Harvard Business Review recently argued, it’s just two things.

• One element is decent compensation—pay at a level that lets a worker support a family. This doesn’t have to come in the form of high, union-scale wages, which often made companies uncompetitive in the global marketplace. It can take the form of stock ownership (through an ESOP or other plan), profit sharing, or both. When the company does well, employees share in the wealth they are helping to generate.
• The other element is an environment of transparency, trust, fair treatment–and learning. Workers learn to understand the economics of the business, so they can think and act like owners. Companies learn to treat employees like partners, not like hired hands. A partnership culture redounds to everyone’s benefit: the company becomes more productive, and employees learn valuable skills that will stand them in good stead in their next job.

The quicker we forget about yesterday’s good jobs—and the sooner we implement the elements that make for today’s good jobs—the better off we will all be.

The post The “Good Jobs” Debate Is Missing the Point appeared first on Employee Owned America.

For example, employee-owners in the middle of the income distribution reported $46,250 in wage income, compared to $38,000 for non-owners. Their net worth was $45,750 compared to $34,400.

These figures are for people in their early 30s, who are the focus of the government’s data. The net worth figures refer to those aged 35 or 36.

Analysis of earlier data, from 2013, showed that early-career employee owners consistently earned more and saved more than non-owning peers. You can read the full report on that study here.

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