Whether you're starting your own business, being offered stock options or simply curious about the basics of shared employee ownership, there are a variety of interesting alternatives to consider. Take a look at what the experts at the Aspen Institute, Rutgers University and the Democracy at Work Institute have put together to clarify options and help determine the best route for both employees and businesses.
Employee Share Ownership
In a business with employee share ownership, employees share in the success of the business. Millions of employees participate in employee share ownership programs in the US economy. Rutgers' analysis of the General Social Survey estimated that, in 2018, nearly 23 million employees, representing more than 19% of all US workers, owned some share in their employer. More than one-third of employees participate in a profit-sharing plan nationally, mostly earning modest profit shares, while more than half of all employees in companies with stock participate in some form of a profit-sharing plan or stock option plan.
Employee Stock Ownership Plans (ESOP)
These plans allow companies to finance the purchase of a company's shares for employees, typically with credit using federal tax incentives through an ESOP trust. There are more than 6,000 ESOPs in the United States, with more than 14 million employees holding total assets of over $1.4 trillion. The company pays back the loan, and individual employees typically do not use their savings to buy the stock. As part of the Employee Retirement Income Security Act of 1974, companies must include most of their employees in ESOPs.
Employee Stock Purchase Plans
These plans allow employees to receive grants of restricted stock directly from their companies, which are typically traded on the stock exchanges. Employees also often can participate in Employee share purchase plans, which allow for the purchase of company stock at a discount. Roughly 10 to 15 million employees participate in this form of shared ownership plan. There are no federal guidelines for companies to be inclusive of most or all employees in these plans.
Employee Stock Option Plans
These plans allow employees to purchase stock for ten years at a set purchase price, which enables them to share the benefits of the stock's future gains. Approximately 8.5 million employees participate in these plans, according to the 2018 General Social Survey, which is funded by the Employee Ownership Foundation. There are no federal guidelines for companies to be inclusive of most or all employees in these plans.
Employee Ownership Trusts
These perpetual trusts are owned by all the employees of a firm and make regular profit-sharing payments to the workers. They are just now beginning to spread in the US and are not regulated by any federal laws. No data on the demographic makeup of EOTs is available because research is just beginning on this format.
There are currently 465 worker cooperatives with more than 5,000 employees in the US and an estimated $505 million in annual revenue. These firms are owned and governed by their workers, typically returning company surplus to workers based on the labor dedicated. There are no federal guidelines for companies to be inclusive of most or all employees in these plans, but most worker-owned cooperatives are relatively small, and there are no indications that classes of workers are excluded from cooperative membership. In addition, demographic data indicates that worker cooperatives are highly inclusive of women and people of color.
To learn more about employee ownership sharing options, see the Aspen Institute's full report, Race and Gender Wealth Equity and the Role of Employee Share Ownership (portions of this content were shared with permission from the authors) and register for UC San Diego Extension's Understanding ESOPs: Training to be an ESOP Professional course with Kim Blaugher, Executive Director of the Beyster Institute.
Jenny Weissbourd, Maureen Conway, Joyce Klein and Yoorie Chang
The Aspen Institute Economic Opportunities Program
Joseph Blasi and Douglas Kruse
Institute for the Study of Employee Ownership and Profit Sharing at Rutgers School of Management and Labor Relations
Melissa Hoover, Todd Leverette, Julian McKinley, and Zen Trenholm
Democracy at Work Institute