The Employee Ownership Update
February 1, 2017
The State of Employee Ownership Policies in the United StatesIn Having a Stake, a publication released today by Third Way, Joseph Blasi, Douglas Kruse, and Richard Freeman assemble the current state of research on all forms of employee ownership, making a case for changing public policy.
In the introduction, the authors summarize the article: "policies to expand capital ownership and profit sharing that the founders of the U.S. saw as the right way to address the inequality and economic problems of their day are as appropriate—or even more so—to the inequality and economic problems of our day. With the experience of the past to draw upon and a large and growing set of studies on how different forms of employee share ownership and profit sharing work in modern settings, it is time to examine how ownership and profit-sharing policies can help make U.S. capitalism more efficient and equitable in the current economic environment."
The article examines the data on profit sharing, ESOPs, broad-based equity compensation, and worker cooperatives, and concludes that four findings support stronger policy support for employee ownership:
- It reduces inequality of wealth and income.
- It improves company productivity.
- It increases net employment by enhancing firm survival and employment stability.
- It is associated with increased employee voice, access to information, and more satisfying work experience.
New Missouri Legislation Leads to a New ESOP CompanyPFSbrands is a Missouri-based company with 120 employees that supplies hot food programs to convenience and grocery stores nationally. Shawn and Julie Burcham were the company's shareholders. On January 1, 2017, Missouri House Bill 2030 became effective, and PFSbrands became 100% ESOP-owned on January 3. In the words of Shawn Burcham:
We started our journey to an ESOP by contemplating the sale of stock with small percentages year over year. Then, it was announced that Missouri House Bill 2030 would become law. The bill incentivized business owners in Missouri to sell 30% or more of outstanding stock to employees in any given year under an ESOP. The incentive reduces the state capital gains tax in Missouri from 6% to 3%. While some states do not have capital gains taxes, Missouri did the right thing with this bill to stay competitive with some neighboring states that have similar incentives for ESOP transactions. This incentive directly impacted the financial outcomes of our modeling and was a major factor in making a 100% sale of stock mutually beneficial for both sellers and employees.
Department of Labor Issues New Guidance for Voting Company Stock in Retirement PlansIn Interpretive Bulletin 2016-1 (PDF), the Department of Labor issued new guidance for fiduciaries of retirement plans that have company stock as one of their investments. The guidelines are aimed at fiduciaries in public companies, but would be applicable to ESOPs as well, albeit in a limited way. It lays out guidance on when and in what ways plan fiduciaries can engage in active monitoring of company management employees as well, including establishing an investment policy specifying long-term objectives.
The Department said it was concerned that the interpretations of prior guidance (IB 94-2 in IB 2008-2) are "out of step with important domestic and international trends in investment management and have the potential to dissuade ERISA fiduciaries from exercising shareholder rights, including the voting of proxies, in areas that are increasingly being recognized as important to long-term shareholder value." This can include engagement on environmental and social goals.
Employee Ownership and State Policy: North CarolinaIn a report titled Down Home Capital, Patrick McHugh examines the current status and policy alternatives for North Carolina to minimize the disruption caused by the impending retirement of business owners:
North Carolina has the potential to turn a grave challenge into a transformative economic opportunity. Thousands of businesses could disappear over the coming years as baby boomer entrepreneurs enter retirement, threatening to deal a heavy blow to communities across the state. However, by helping many of these firms convert into employee-owned companies, we can keep their doors open, give workers an ownership stake into their economic future, and buttress local economies. [Page 2]The report, published by the progressive North Carolina Justice Center, examines the number of business that are likely candidates for changes in ownership, compares employee ownership to other economic development strategies, summarizes the research on employee ownership, and discusses state-level policy approaches that would support employee ownership.