Newsletter Article
September 2020

How are ESOP Companies Faring in the COVID-19 Crisis?

In our Spring 2020 ESOP Topics Survey, we surveyed ESOP companies about the effects of the COVID-19 crisis on their businesses and how they are responding. We received responses from 160 privately held companies with an ESOP in May and June 2020. The surveyed companies represent a range of industries and sizes, though they are not intended as a representative sample of all ESOP companies.

Table 1 shows the percentage of companies taking (or planning to take) each of several potential measures in response to the crisis. A majority of respondents are tapping into emergency cash reserves, and pay freezes are common. A few companies are considering an interim ESOP valuation to adjust their stock price to reflect changed circumstances.

Fourteen percent of responding companies have laid off at least some staff as a result of the crisis, and an additional 15% say they are planning to perform layoffs. Among companies that have done layoffs, the percentage of employees laid off ranges from 3% to 17% (median 10%). Companies with over $50 million in revenue were more likely to report layoffs.

To put this layoff data in national context, approximately 30% of all U.S. workers have filed an unemployment claim since the beginning of the COVID-19 crisis in mid-March (although some have since returned to work and others dropped out of the labor force), according to data from the Department of Labor.

Table 1

A plurality (40%) of respondents expect their 2020 revenue to be equal to or greater than their 2019 revenue, and over two-thirds expect no more than a 10% decrease in revenue. About one-third of the respondents are foreseeing a drop of 10% or more. See table 2.

Table 2

Manufacturing and wholesale trade companies are most likely to be expecting a large decrease in revenue in 2020. Thirty-nine percent of manufacturing companies and 33% of wholesale trade companies say they expect a 10% decrease or greater, followed by construction companies (32%).

A solid majority of survey respondents said being employee-owned has had a positive effect on their ability to respond to COVID-19. Almost none said it has had a negative effect. See table 3.

Table 3

Discussing the positive impacts of the ESOP, many respondents emphasized the mindset of “all in this together” that their ESOP has helped to create. Others noted that using open-book finances and other forms of transparency helped create buy-in for the actions necessary to keep the business running. In the words of one employee-owner quoted in the responses: “Employee ownership might not make that much of a difference in good times but it really helps in bad times.”