The Employee Ownership Update
March 17, 1995
Employees Now Own 5.8% of All Corporate EquityThe NCEO now estimates that employees own the rights to 5.8% of the corporate stock in the U.S. The estimates are based on Form 5500 filings for ESOPs and 401(k) plans and an estimate of the value of stock options granted broadly to employees.
There is an estimated $6 trillion in corporate equity in the U.S. As of the end of 1992, $150 billion was owned by ESOPs. That number has probably increased some in the last two years, but not a great deal. Based on data compiled for us by Doug Kruse of Rutgers and surveys by Hewitt Associates and the Profit Sharing Council, we believe another $100 billion in employer stock is owned through 401(k) plans (those not combined with ESOPs). Finally, based on data from ShareData and our own information, we believe employees own about $100 billion in options and other broad ownership plans.
Unfortunately, there are no reliable trend data to which we can compare these numbers, but we believe they represent at least twice the what the number would have been ten years ago.
Workplace Participation MeasuredA new survey of 3,173 companies for the Bureau of the Census looks at participation in the workplace. According to the survey, 54% of the employees at companies studied regularly participate in scheduled meetings to discuss workplace issues, 37% of the companies use Total Quality Management, and 13% of all employees participate in self-managed teams. The sample was weighted towards larger firms and oversampled manufacturing companies.
IRS Says Employee 401(k) Contributions Can Be Used to Repay ESOP LoansIn Technical Advice Memorandum (TAM) 9503002, issued January 9, 1995, the IRS said that a plan that allows employees to use their 401(k) deferrals to repay an ESOP loan does not violate ERISA. The IRS reasoned that the employee contributions under 401(k) are legally treated the same as employer contributions, so it is acceptable to allow investments for this purpose. The ruling could be of considerable interest to public companies with combined 401(k)/ESOP plans. Already, companies that offer employees the option of investing in their own shares find that about 25% of the investments are used for that purpose, so these funds could make it easier for companies to repay ESOP loans.
Developments at United AirlinesUnited Airlines will remain the most closely watched employee ownership company for some time. A front page article in the Wall Street Journal for March 6, 1995, said that Wall Street analysts were worried about United's decision to expand its operations at a time when investors are rewarding other airlines, such as Delta and Northwest, for cutting back. The article also said some United managers were uneasy with the more participative environment at the company.
United has launched a series of 150 task teams designed to involve cross-sections of employees in analyzing all aspects of the company and developing recommendations on how to make improvements. While there remains a considerable residue of bitterness about the concessions the deal involved, and while the flight attendants now seem unlikely to join the ESOP any time in the foreseeable future, the new directions in management launched by CEO Gerald Greenwald have won plaudits from many employees. United's approach would make it the most participatively managed U.S. airline. Other things being equal, research indicates this should serve the company well.