Employee Ownership Blog

Ownership Works, Expanding ESOPs, and Private Equity

Two new organizations have entered the field of employee ownership: Ownership Works and Expanding ESOPs. Both have connections to private equity, and since not many topics generate stronger feelings or more controversy than private equity, I’m writing this article to answer common questions about these two organizations. 

There are four things everyone in the field should know about Ownership Works and Expanding ESOPs.

1. They are two separate organizations connected via Pete Stavros.

Pete Stavros is the co-head of global private equity at KKR, one of the largest private equity firms in the country. He is the founder of both Expanding ESOPs and Ownership Works, he provided and/or secured funding for both organizations, and he remains actively involved as the chairman of both organizations. 

The two organizations are separate and do not share staff, mission, or activities.

2. Ownership Works covers broad-based equity compensation plans, not ESOPs.

Ownership Works promotes the use of broad-based equity compensation plans such as restricted stock at companies, most of which are owned by institutional investors, including private equity firms. Due to scale, investor structure, and global operations, the companies it works with typically fall outside the scope of other models, including ESOPs.

The Ownership Works model specifies that employees do not pay for their equity awards, that the awards be broad based, and that they be valued at the same price as the institutional investors. Employees at companies using the Ownership Works model would receive an award, usually at the point that the investor exits via a sale – generally after five to seven years. 

Ownership Works does not mention ESOPs or describe its model as having anything to do with ESOPs.

The goal of Ownership Works is to change the approach of existing market actors; it does not have a legislative agenda. The Ownership Works model does not require and is not seeking any tax incentives.

3. Expanding ESOPs seeks new paths to ESOP adoption.

The founding idea of Expanding ESOPs is that the limited growth of ESOPs and their concentration in smaller closely held companies is a result of their applicability being limited by structural and legal factors. Expanding ESOPs intends to seek legislative and regulatory changes, although it has not yet made a policy proposal. The changes it seeks would be to facilitate transactions rather than to change ERISA requirements for plan operations.

One of its goals is to encourage the adoption of partial ESOPs in large companies, including publicly held ones. The amount of stock in ESOPs at publicly traded companies has decreased substantially since the 1980s.

4. The NCEO’s involvement with Expanding ESOPs and Ownership Works.

My colleagues and I at the NCEO are frequently asked about the NCEO’s position. We are not an advocacy organization, so the answer is in a few parts. 

First, the NCEO’s mission—to make employee ownership thrive—means that we strive to be a credible source of information about all forms of broad-based employee ownership. We support ESOPs, equity compensation plans, employee ownership trusts, ownership culture, and emerging forms of employee ownership. 

Second, we are active collaborators with most established organizations in the field and welcome connections with new organizations. We have done joint projects with Employee-Owned S Corporations of America (ESCA) and the Employee Ownership Foundation, and we coordinate closely with other organizations, especially the Employee Ownership Expansion Network. Similarly, we communicate often with both Ownership Works and Expanding ESOPs, and we attend some Expanding ESOPs meetings. Expanding ESOPs has a coalition, but the NCEO does not join such coalitions—we are not a member of the Expanding ESOPs coalition, nor do we have plans to be. 

Third, we take a journalistic approach to reporting on the activities of Expanding ESOPs and Ownership Works, including challenges and successes. With all issues relevant to employee ownership, we do our best to objectively analyze the impact, including our article Private Equity and Employee Ownership. We zealously protect our independence, and, as a charitable organization—a 501(c)(3)—we built our funding model to make it easy for us to be unbiased. We do not receive money from either organization beyond the types of purchases open to all. We seek a big tent about all forms of employee ownership at our events, and representatives of both organizations have made presentations at our events. That’s the same approach we will continue to take with all organizations in employee ownership.

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