The Employee Ownership Update
August 1, 2013
Department of Labor Data Shows ESOPs Outperform 401(k) PlansThe U.S. Department of Labor released data on retirement plans with 100 or more participants that shows ESOPs generally provided a greater aggregate rate of return than 401(k) plans. The average rate of return over the 15-year period from 1996 to 2010 was 6.9% for ESOPs, versus 5.8% for 401(k) plans. Both leveraged and nonleveraged ESOPs outperformed 401(k) plans, though leveraged plans had a higher average return (7.8% versus 6.6% for nonleveraged plans). The report also found that:
The table below has some highlights from the report.
- Data over 20 years (from 1991 to 2010) shows ESOPs outperforming 401(k) plans in 15 years and underperforming in 4.
- ESOPs outperformed 401(k) plans by the smallest margin in 2006 to 2010 and by the largest margin in the 1990s.
- The standard deviation for returns to ESOPs was slightly lower than for 401(k) plans; over the 15-year period, it was 12.0% for ESOPs overall, versus 12.3% for 401(k) plans.
- The return on leveraged ESOPs had less year-to-year variation and lower standard deviations than nonleveraged ESOPs.
The report, titled Private Pension Plan Bulletin Historical Tables and Graphs, was released in November 2012. The relevant tables are E21 and E23.
|Aggregate Rates of Return Earned, ESOPs and 401(k) Plans with 100 or More Participants, 1996 to 2010|
|All ESOPs||Leveraged ESOPs||Nonleveraged ESOPs||401(k) Plans|
|Geometric mean: 1996 - 2010||6.9%||7.8%||6.6%||5.8%|
|Geometric mean: 2006 - 2010||4.1%||5.5%||3.6%||3.9%|
|Geometric mean: 2008 - 2010||0.5%||2.2%||0.1%||0.0%|
|Standard deviation: 1996 - 2010||12.0%||10.4%||13.0%||12.3%|
United Kingdom Celebrates Employee Ownership DayOn July 4, politicians, academics, government agencies, and employee-owned businesses participated in more than 100 events throughout the United Kingdom to celebrate the country's first employee ownership day. The Guardian, the BBC, the Financial Times, and more than a dozen other media outlets covered the day's events.
A number of members of parliament participated in events, including Jo Swinson (Liberal Democrat), the Business Minister, who spoke during the employee ownership day conference. In an article, Swinson wrote, "Employee ownership allows employees to have both a voice in how the business is run through employee engagement and a stake in its success. It is a way of running a business that creates both a stronger economy and a fairer society."
Become Certified in Equity CompensationThe Certified Equity Professional Institute (CEPI) at Santa Clara University offers a certificate for professionals in equity compensation. Learn more about the CEPI and the certification process on its Web site. NCEO members who want to take the November 2 exam can save $200 on the standard amount. You can sign up for the exam by contacting the CEPI at 408-554-2187 or email@example.com. Mention that you are an NCEO member (if you're not, you can become one here) to claim your discount.
Tell Us Your Company's Competitive Success StoriesWe are working on a publication about the experiences of employee ownership companies as they compete against other companies in their markets. We would like to hear about how your company has succeeded against competitors and what you have learned about using employee ownership as a competitive advantage. If you have story that others might want to hear, please share it with us! We prefer to name companies, but we do also want stories that would require anonymity. Please contact Camille Kerr (510-208-1310, firstname.lastname@example.org).
NCEO Seeks Web Designer for International Employee Ownership Web SiteDoes your company have Web design expertise? Might you be interested donating some time to promote employee ownership around the world? If you would like to learn more about the NCEO's project to build an international association of employee ownership organizations, please contact Loren Rodgers (510-208-1307, email@example.com).
Author biography and other columns in this series