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The Employee Ownership Update

Loren Rodgers

December 15, 2016

(Loren Rodgers)

USDA Policy Change Supports Worker Ownership

In a December 12 blog post, the US Department of Agriculture announced a new program to support the conversion of businesses to worker cooperatives and ESOPs. As of August, the Business & Industry (B&I) Guaranteed Loan Program can provide financing for a transaction.

The blog post describes a major aspect of this policy change: "Under the previous B&I rules, loans for purchasing businesses with a B&I guarantee required complete ownership transfer so that the selling owner retains no financial or ownership interest. This requirement made it difficult for the employees to take on such large loans and did not permit the selling owners to stay involved for transferring the know-how for running the business."

Bureau of Labor Statistics: ESOP Participation

In a December article, Defined contribution retirement plans: Who has them and what do they cost?, Eli R. Stoltzfus of the Bureau of Labor Statistics describes participation rates in various types of defined contribution (DC) retirement plans. Overall, he notes that 44% of private sector workers participate in a DC plan.

About 4% of those who participate in DC plans participate in ESOPs, which are far less common than savings and thrift plans, which include 401(k) plans. Seventy-four percent of private sector workers with DC plans participate in savings and thrift plans, followed by 19% in deferred profit sharing plans and 16% in money purchase pension plans.

New Research: How Do Employees Use Proceeds from Stock Purchase Plans?

Fidelity released a new study on December 12 that described the ways that participants in employee stock purchase plans (ESPPs) used the proceeds from the sale of stock acquired through those plans:
CategoryPercentage of respondents using
Help with debt34%
Reinvestment and retirement19%
Home improvement and real estate17%
Saving for a "rainy day"11%
Emily Cervino, vice president of stock plan services at Fidelity, notes that "ESPPs are sometimes overlooked as a workplace benefit. In most cases, as many as two-thirds of eligible employees do not participate in their ESPP."

New Research: Employee Ownership, Productivity, and Employee Satisfaction

In a December 13 article in the online Harvard Business Review, Alex Bryson (University College London) and Richard Freeman (Harvard University) note that "Since the mid-2000s, broad-based shared capitalist programs — in other words, programs where firms offer profit sharing and employee ownership to nonmanagers as well as managers — have spread to cover more employees than traditional forms of individual performance-based pay in Europe and the United States."

They say that the state of research is now sufficient to address—and refute—the three main economic arguments against profit sharing and employee ownership: the so called "free rider" problem (where individual employees do not work hard because they can rely on the efforts of others), the "line of sight" problem (where employees cannot see the impact of their own behavior on company success), and risk aversion. They describe these arguments as "debunked," and also cite findings showing increased productivity by shared capitalist firms and higher levels of employee satisfaction.

The NCEO on Current Events

The NCEO will be posting analyses of current events as they relate to employee ownership, starting with our December 9 comment on the nomination of Andrew Puzder to be Secretary of Labor. You can visit (or bookmark!) our Employee Ownership and Current Events, which will be updated frequently. You can also follow us on Twitter to receive notifications of employee ownership in the news.

An excerpt from our first post in this series is here:
Andrew Puzder, CEO of CKE Restaurants and Donald Trump's nominee for Secretary of Labor, spoke on President-elect Trump's economic plan in a blog post right before the election. He characterized the proposed policies as being "populist" and aimed at "reducing income inequality... and opening paths to the middle class."

Employee ownership is economic populism. People who are angry at the concentration of elite power will recognize employee ownership as a way to shift the economy toward the middle class. Communities that have seen jobs slip away can use employee ownership to root economic activity locally. People who feel themselves to be disempowered cogs in an impersonal economic machine can learn how business works and, together with their co-workers, take responsibility for their own economic futures.

Unemployment and Employee Ownership

Writing in Forbes, Darren Dahl examines the relationship between employee ownership and unemployment, sharing results from Rutgers University's Douglas Kruse examining layoff rates for employee-owners. Dahl also looks at the impact of automation on employment, arguing that the productivity-enhancing impact of employee ownership may reduce the spread of robots.

ESOPs 101 for CPAs: A Program at the Beyster Institute

On February 2, the Beyster Institute at the University of San Diego will offer a half-day class designed to help CPAs work with clients interested in ESOPs. The program will cover the advantages of ESOPs and what makes them a good or bad fit for a company. More about the program is on the Institute's events page.

Author biography and other columns in this series

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