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The Employee Ownership Update

Loren Rodgers

February 16, 2015

(Loren Rodgers)

Share Your Data: The ESOP Transaction Survey

How many ESOPs cost more than $200,000 to establish? How many transactions involve seller financing and warrants? How many professionals and what types do companies typically engage?

No one knows the answers, and an opaque market is a deterrent to potential ESOP transactions. The NCEO requests the help of current ESOP companies to share some core measures of their ESOP transactions, such as the types of service providers involved, the percentage of shares, and the broad cost range.
Complete the survey here. It should take no more than 15 minutes and requires minimal research, if any.

Your responses will be completely confidential, and the NCEO will release only aggregate results to avoid any exposure for individual companies or even small groups of companies.
Our goal is to publish an easy-to-find document that can help business owners considering an ESOP ask the right questions and maximize the chances that they end up with the best transaction for their situation.

Contact Nancy Wiefek (; 510-208-1312) with questions.

New Study Finds Advertising as Being Employee-Owned Aids Recruitment

A new study reported on at the 2015 Rutgers Employee Ownership Fellows Program shows that companies advertising as employee-owned should have much more success in recruiting higher-skilled employees. The as-yet unpublished study, "Applicant Perceptions of and Attraction to Employee Owned Companies" was conducted by Stan Gully and John McCarthy at Cornell and Jean Phillips at Penn State.

The study had three parts. One was of undergraduates, who were asked to self-report their SAT or ACT scores. Two different otherwise identical recruitment ads were given to the participants, one that explicitly stated the firm was employee-owned and one that did not. The results show that higher-scoring students were significantly more likely to prefer the employee-owned company.

A second approach looked at a sample of 147 working professionals recruited through Amazon's Mechanical Turk, a crowdsourcing Internet marketplace that enables individuals and businesses to connect to do jobs computers have a hard time doing. The average age of respondents was 36, with 14.8 years of work experience. Twenty-one percent had experience working for a firm with an employee ownership plan. After completing consent forms, participants were randomly assigned to respond to descriptions of employee-owned firms or non-employee-owned firms. The study found dramatic differences in how participants perceived such factors as empowerment, engagement, job turnover, and other dimensions. On a seven-point scale, employee ownership companies typically rated around a six, and other companies half that or less. A second study looked at 279 working professionals, but this time screened for prior management experience. Again, the result showed that higher-skilled people were much more drawn to employee-owned companies.

Korea Moves to Encourage Employee Ownership

Korea has long had laws that provide incentives for companies and employees to buy shares in their companies, but a recent article in the Korea Times notes that the government recently announced a much expanded set of programs. Currently, just 0.6% of Korean companies offer these plans, and employees own 1.3% of traded shares. Under the new laws, employees can buy stock and take a tax deduction for the expense. If they hold the shares six years or more, they will be exempt from income tax on the gains. Purchases can be made in monthly installments and are deductible up to about $3,800 per year. Companies can also get a tax deduction for use profits to fund an employee ownership plan.

Last, the government will set up a hedge opportunity for employees, details of which have not yet been announced. Some European companies use these programs, however, and they provide that employees can borrow money to buy shares and repay the loan in a specified number of shares, rather than cash, retaining the shares not used. If there are not enough shares, they are not responsible to pay.

Online Library Guide for Employee Ownership

Salisbury University recently updated its online guide of books, videos, and case studies on ESOPs, worker cooperatives, and other forms of inclusive capitalism.

Wisconsin and Worker Ownership

Madison, Wisconsin, mayor Paul Soglin says his city will "not to be upstaged by New York City." New York has allocated $1.2 million to promote worker cooperatives, and Madison has now agreed to spend $1 million a year for the next five years to help develop promote worker-owned cooperatives.

UK Labour Party Unveils Employee Ownership Initiatives

The Conservative Cameron government in the United Kingdom has created a series of new incentives for broad-based employee ownership, including incentives for companies and business owners to use an ESOP-like mechanism to transfer ownership to employees in closely held companies.

Now the Labour Party is weighing in with the Hunt Review (PDF). The review looks at a wide variety of shared capitalism measures (what is often called mutualisation in the UK). The section on ESOPs calls for a number of new incentives, including:

The NCEO Board of Directors

Thank you to all who voted in the NCEO's board election. Please join us in welcoming our newest board members, whose terms will begin on April 1:

In addition, Alison Wright of Hanson Bridgett LLP won election to a second three-year term.

With a mix of sadness and appreciation, we also acknowledge the service of the following directors who are no longer part of our board: Victor Aspengren, Nancy Dittmer, Paul Horn, Linshuang Lu, Bill Marshall, Pat Moody, and Dan Walter. Thank you!

Author biography and other columns in this series

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