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The Employee Ownership Report

NewsletterConcisely written for leaders in employee ownership companies and for service providers in the field, the NCEO's bimonthly newsletter, the Employee Ownership Report, is the most efficient way to stay informed about legal issues, current events, best practices, breaking research, management approaches, and communications ideas for employee ownership companies.

Available exclusively to NCEO members, the Employee Ownership Report is delivered in hard copy and all issues back to 1997 are available in the members-only area of the Web site.

Nonmembers are invited to read the sample article below from the current issue of the newsletter. Every time a new issue appears, the sample article on this page will be replaced by one from the new issue. Join online for only $90 to receive the Employee Ownership Report and all our other membership benefits.

Read a sample issue of the entire newsletter (September-October 2015).

Sample Article from the March-April 2018 Issue:

New Research on Employee Ownership

Each year, the Beyster Fellowship Program at Rutgers University brings together close to 100 scholars doing work on shared capitalism. While much of the work focuses on narrow academic issues, worker cooperatives, or economic theory, several papers speak directly to the kind of issues readers of this newsletter care about.

Richard Freeman of Harvard provided some context when he noted that between 1980 and 2017 real wages rose 14% while returns to the S&P 500 rose 543%. By contrast, in the 35 years prior to that, the differential was less than two to one. Freeman argued the trend dramatically shows why economic strategies relying on income are doomed to be of limited value in an era when high-skilled jobs are increasingly being replaced by artificial intelligence. While total employment may not decline, the number of high-paying jobs almost certainly will. The key to future policy is finding ways for employees, and indeed citizens at large, to share in the ownership of wealth.

John Lewis Partnership

Frank Shipper reported on a case study of the John Lewis Partnership, the UK's iconic 90,000-employee retailer (the John Lewis department stores and Waitrose supermarkets). The company has been owned for decades through a permanent trust for all employees. The employees do not have a share interest, and the trust cannot be sold. Instead, the employees get a share of annual profits, which has averaged about 15% of pay, although it has dropped somewhat post-Brexit. Employees get a variety of benefits including access to vacation facilities, close to free dining, working for a charity for up to six months, and tuition support. All employees are considered members from the first day of employment. Employees elect local and national councils. The local councils work to set policies and can fire the managers. The national council meets with the CEO and can fire the CEO as well.

In 2012, all three major political parties argued for a "John Lewis Economy," and Parliament passed legislation to provide tax incentives to companies and owners to sell to employee ownership trusts on the John Lewis model. So far, about 150 companies have set up these plans for business transition. A few companies in the U.S. have now adopted the John Lewis permanent trust model.

How Employees Fare in ESOPs

Doug Kruse of Rutgers University reported initial results from an analysis of how employees fare in ESOPs based on an analysis of individual participant data from a major ESOP administration firm. These new data allow an analysis by age, gender, tenure, and compensation levels, something we have never had before. The results come from a developing project between the NCEO, the Employee Benefit Research Institute, and Rutgers. We are hopeful that that project will yield tens of thousands of employee records to analyze, though the work of procuring the data is still in progress.

One of the plan administration firms that will be involved in the study provided data to Kruse and Joseph Blasi for 96 companies, 12,618 current employees and 5,541 retirees. The median ESOP balance was $10,417 and the mean was $48,314. This translates in a median percentage of total compensation of 22.7% and a mean of 72%. These data include employees who have been there for a short time and those there for a long time, so it does not reflect what typical employees might expect over time.

Looking at years of participation, for those with 0-5 years of participation, the mean balance was $13,711, rising to $243,458 for those with 20+ years. The medians were $5,075 and $95,600. The account balances vary by compensation as well. Employees under $30,000 in annual pay have a mean balance of $8,523 and a median of $3,485; those with over $74,000 in ay have a mean account balance of $114,661 and a median of $37,950. Interestingly, these data are very similar to the account balances for people at similar levels of pay, age, and tenure for 401(k) plans (for the 39% of employees who are in any kind of retirement plan), but, unlike 401(k) plans, the money in these employee accounts is entirely contributed by the company. The data have not yet been broken out by the age of the plan, but were adjusted for tenure in the plan. ESOP account balances are driven primarily by five factors—the age of the plan, employee compensation, the size of the annual contribution, employee tenure, and changes in stock value. Future research will make this analysis possible.

State and Local Legislation Initiatives

A panel looked at legislative initiatives, including state and local programs. In addition to the New York law recently passed to create a study commission on promoting employee ownership, legislation to promote employee ownership has been introduced in New Jersey and Wisconsin. Massachusetts has just committed to funding a state employee ownership center that was authorized, but not funded, last year. Bids will be sent out for a place to house it.

Chris Michael reported on a new local program he is running in Newark, NJ, where the city, working with private partners, will provide funding for companies to use ESOPs for business transition. Michael has been contacting companies that fit the characteristics of good candidates and has received an encouraging response.