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The Employee Ownership Update

Corey Rosen

August 29, 2008

(Corey Rosen)

Majority ESOP-Owned Companies Have 8.8% Productivity Edge

A new study of 328 majority ESOP-owned members of the ESOP Association by Brent Kramer has found that these companies have sales per employee that are 8.8% greater than comparable non-ESOP companies. 100% ESOP-owned companies did better than those that were over 50% but not 100%. Smaller companies and companies with greater ESOP account value per employee also did better. Employee influence on new products, work design, and marketing all were also strongly related to performance outcomes.

The study does not demonstrate that having an ESOP per se causes these performance benefits: its design cannot preclude the possibility that better-performing companies are more likely to have ESOPs in the first place (although prior research using before-and-after data, indexed for competition, does indicate a casual effect). The correlates of performance, however, are less subject to this chicken-and-egg problem and provide useful insight into what makes an ESOP work.

Kramer's study, "Employee Ownership and Participation Effects on Firm Outcomes," was his doctoral thesis for the City University of New York.

New NCEO Issue Brief on State of Broad-Based Equity Plans in the U.S.

A new NCEO issue brief, The State of Broad-Based Employee Equity Plans, looks at research on the prevalence of these plans, who participates in them, and how they have changed in the last decade. It also reviews research on the impact of equity plans on corporate performance.

The issue brief finds that the consensus of researchers indicates that about nine million U.S. employees receive stock options, restricted stock, or other individual equity awards. Most technology companies still offer awards to most or all employees, and virtually all pre-IPO firms do. About 11% of public companies make most employees eligible for awards, although eligibility does not always translate into actually receiving an award. About 11 to 12 million employees participate in employee stock purchase plans. The number of employees involved in both individual equity and stock purchase plans has dropped about 30% from its 2001 peak, but is about the same as the late 1990s.

The issue brief also summarizes research on the impact of broad-based versus narrowly issued plans. Almost all the studies on broad-based plans find that they have a positive impact in performance. Plans focused on executives have a mixed record in the research.

The study is available for $15 to NCEO members and $25 to non-members. See here for excerpts and ordering information.

Top 47,000 Families Owned $1.196 Trillon in Private and Public Equity in 2004

According to a new IRS analysis of wealth holdings, the top 47,000 families in the U.S. (those with over $20 million in assets) owned $1.196 trillion in public and private corporate equity. That is 35.4% of all the equity in public and private companies held by households with over $1.5 million in assets. The IRS does not have data on how much everyone else owns, but, based on other wealth data, it is likely that the large majority of corporate assets is held by those families with over $1.5 million in assets. In 2004, all defined contribution plans had total assets of $3.38 trillion and covered about half of the workforce (most of the rest have no employer-provided retirement assets).

Correction on Appleton Inc.

In the September-October issue of the NCEO's newsletter for members (the Employee Ownership Report), I reported that 400 steelworkers at ESOP-owned Appleton Inc. (Appleton has approximately 3,000 employees) had gone on strike. That story was based on a news story, but it turns out the story was wrong (as was I to rely on it without additional checking). In fact, the union and the company reached a very amicable agreement before any strike. The union president stated in a news release after the agreement that the mill's union-represented workers always believed that an agreement could be reached. "While negotiations are never easy, we believed in our ability to get a fair contract and we did." Appleton was bought by an ESOP in 2001. The company has done exceptionally well since then, especially given the difficult environment for the paper industry in general.

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