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The Employee Ownership Update

Loren Rodgers

June 15, 2017

(Loren Rodgers)

Candidate for Colorado Governor: Announcement at Employee-Owned Company

Saying "Our challenge as a state is we need an economy that works for everybody, and I think making sure that workers and employees can share in the success of their companies - not just the CEOs and investors - is an important part of making Colorado work for everyone," Jared Polis announced that we will be a candidate for governor of Colorado. Polis, currently a member of the U.S. House of Representatives, made the announcement at an employee-owned grocery store.

Polis promised that as governor he would "remove some of the hurdles and bureaucratic red tape that make it costly for companies to go this model," specifically mentioning preferred purchasing policies. Halisi Vinson of the Rocky Mountain Center for Employee Ownership supported the candidate's policy ideas.

A New Index of Employee Ownership Companies

Long-standing research suggests that the combination of employee ownership and participative management results in better-than-expected company performance. Much of the research on this topic has been on private companies, and to extend it systematically to public companies, it's necessary to create objective criteria to serve as a screen. No one to date has attempted to create such a screen, which requires criteria for broad-based ownership and also for employee engagement.

The NCEO has now created an index of public companies that have both a broad-based equity plan and a strong score on an outside measure of employee engagement. We will track the performance of this index over the long term to see if these companies demonstrate the performance advantages the research suggests.

The index consists of 26 companies that have (1) broad-based equity compensation programs (ESOPs with an average account balance of $30,000 or more and/or stock option/restricted stock grants for a majority of full-time employees) and (2) high-engagement work practices, as measured by appearing on the Best Companies to Work For list created by the Great Place to Work Institute, the Gallup High Engagement Index, or the Engagement Alliance Index.

The NCEO is not an investment advisor, and this index is not intended as a recommendation for investment. The purpose of this index is tracking the future course of a set of companies. We hope that the index will shed some light on the employee ownership in public companies and about how useful these measures of employee engagement are as a proxy for ownership culture.

The Employee Ownership Index exists and can be tracked at Motif, a web-based brokerage site that allows people to create their own investment portfolios. At this point, Motif is available only to individual investors with accounts at Motif; you can invest in the Index either through a regular Motif account or in an IRA established at Motif, but you cannot buy the Index through a non-Motif account elsewhere. To find the Index, search for the Employee Ownership Index at motifinvesting.com or go to this link.

Disclaimer: This index is not a recommended investment, and anyone choosing to invest money in it does so entirely at their own risk. The NCEO makes no representations about the wisdom of investing in these companies, none of which have been analyzed by any criteria other than described above.

Disclosure: The NCEO will receive $1.00 for each trade made on this index in Motif. All such revenue will be used to support special projects.

Huffington Post Article on NCEO Research

Writing in the Huffington Post, Joseph Blasi reviewed research by NCEO research director Nancy Wiefek. The study, Ownership and Economic Well-Being, finds that "employee stock ownership is linked with better wages, wealth, and benefits for young workers as they move through their first two decades in the workforce." Blasi notes "The young people in ESOP companies had higher median wages and household wealth whether their income was above or below $50,000, whether they were male or female, whether they were people of color or not, whether they were married or single, college-educated or without college, with or without children. This seems to cross over some of the usual fault lines of wealth in American society."

The full research results are at www.ownershipeconomy.org.

Bloomberg on Employee Ownership in Public Companies and Private Equity

A June 13 Bloomberg Businessweek article,KKR Gives Industrial Gives Industrial Workers a Piece of the Action, highlights the rationale behind sharing ownership broadly, as the private equity firm KKR has now done in three large transactions. It also illustrates the resistance the idea has met in public companies. Pete Stavros, who started the program at KKR, told Bloomberg that "treating employees like owners and business partners" is a good idea that, in combination with employee involvement programs, helps the company grow by creating ways to do "a million little things better."

By contrast, Bruce Ellig, a former Pfizer executive and leading writer on executive pay, said the programs are hard to manage and get harder as companies grow. Shareholders also resist diluting equity to share it more widely, preferring to concentrate ownership in a few executive hands. In fact, comprehensive research has decisively shown size is not related to the performance of employee ownership plans (Publix, an employee owned company, has over 180,000 employees) and that broadening, not narrowing, employee ownership leads to better results.

New Data on Repurchase Obligations: Fill In a Survey, Get the Results

The 2017 ESOP Repurchase Obligation Survey is now collecting responses. Visit www.nceo.org/r/repurchasesurvey to fill out the survey online through our secure survey platform. Participants will receive a significant discount on purchase of the full report. Contact Nancy Wiefek at NWiefek@nceo.org or 510-208-1312 with any questions about this survey or any of our other research projects. Visit www.nceo.org/r/research for the latest in ESOP research from the NCEO.

Survey on Employee Ownership and Economic Anxiety

John Zogby Strategies released a report on polling data of employee-owners at companies that are members of Employee-Owned S Corporations of America (ESCA) and compared the results to the population as a whole. They found that "Benchmarked against the broader population, it is clear that employee-owners feel less economically anxious than other workers, and by considerable margins." The employees at ESCA companies were twice as likely as the population as a whole to feel their personal financial outlook has improved over the past 12 months, and feel less worry about retirement, job loss, and general economic anxiety.

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