NCEO Paper Assesses ESOP Risks for Employees, Managers, and Business Owners

Employee stock ownership plans (ESOPs) have widespread support from politicians and academics and can offer significant benefits for employees, business owners, and society. But there are those who argue that there are too many risks associated with these plans. Do they put too much of employee retirement assets at risk? Does the debt that an ESOP typically takes on to finance ownership transition put employee jobs and companies at risk? Do business owners and board members face a high risk of litigation? The new NCEO paper Assessing the Risks of ESOPs for Employees, Managers, and Business Owners (PDF; also see the embedded version below) by NCEO founder Corey Rosen summarizes in detail the extensive research on each aspect of ESOP risk.

How do employees fare in ESOPs in terms of total retirement assets and job security? How likely is an ESOP company to end up in court? Are ESOP companies more at risk of bankruptcy or layoffs? To really understand the potential risks, we need to look at the now-extensive research on each of these issues. The paper finds that in each case, the risks are low and the rewards substantial. While ESOPs are not risk-free, the story of their success for workers, companies, and society suggests that this is one of the most effective economic policies the government has created. The real risk with ESOPs is that there are not enough of them. They are one of the few policy measures that have effectively and directly addressed the growing problem of wealth inequality and security in the United States while at the same time helping companies grow, imposing minimal costs on taxpayers, and garnering the almost universal support of political leaders.