Corey Rosen, Founder, National Center for Employee Ownership

Johnny’s Pizza House is a chain of 38 company-owned pizza and eleven franchise restaurants in Louisiana, Arkansas, and Mississippi. Johnny’s employees don’t just serve up slices—they get a slice of the company too. Johhny’s is 100% owned by its almost 1,000 employees though an Employee Stock Ownership Plan (ESOP), a kind of employee benefit plan paid for by the company. Its ESOP started in 2000, with the employees accumulating more ownership over time. Melvin Lacerda, the CEO of Johnny’s, says that many ordinary employees have left with seven figure checks for their ownership.

Johnny’s is not some outlier. There are about 6,500 ESOPs with about 14 million employees and $1.4 trillion in assets. About 95% are closely held companies like Johnny’s, and while ESOPs can own any percentage of company stock, most will end up being 100% employee owned. ESOPs are created by companies, which fund them out of pre-tax profits (not employee money), often to buy out a retiring owner (like Johnny). There are significant tax benefits for doing so. Shares are held in a trust and allocated to at least all employees who work full-time for a year.

While ESOPs are the most common form of employee ownership, millions more employees are given stock or stock rights in their companies or can buy stock at a significant discount. Even private equity is getting in the act, with Pete Stavros of KKR leading a new non-profit, Ownership Works, that has enlisted over two dozen private equity firms to commit to doing deals that give workers what will amount to about six months to two years of pay in stock when the firms they acquire are sold.

As my coauthor and I argue in our new book, Ownership: Reinventing Capitalism, Companies, and Who Owns What, if we want to reform capitalism to make it safe for democracy and better for workers, we need to think about how the structure of ownership can be reformed. In the last five decades, real wages have been stagnant, but returns to capital investment, adjusted for inflation, have gone up over 8% per year. Depending on the survey, about half the population says it cannot put its hands on $400 or $1,000 in an emergency. Fifty percent of the private sector workforce has no retirement plan at all, and those who do have plans too often have too little to be economically secure. The numbers for people of color and single women are even worse.

The main effort to address these issues over the years has been raising wages, a battle that has made only the most minimal progress because of entrenched opposition, even from some Democrats. And while higher wages certainly would help, people need the economic security only ownership can provide. This is an idea the left and right agree on. There is a good chance legislation sponsored by Bernie Sanders to promote employee ownership education and outreach ((the WORK Act, now part of a bipartisan reform of retirement law) will pass this year. He has been a long-time proponent, but so has the ultra-conservative Ron Johnson (R-Wi). The Republican Party Platform endorsed the idea. Ronald Reagan and Ted Kennedy were fans; all three Jesse’s (Jackson, Ventura, and Helms) endorsed it. There have been 17 separate laws to encourage ESOPs in Congress and all have passed without opposition. Promoting employee owners is not just good economics, it is good politics.

But broad as that support is, employee ownership usually just gets a passing nod and pat on the head from pundits and politicians. Sure, it’s a nice idea, but is it really important enough to talk about?

It is that important. Consider how ESOP have performed. In a recent study of every ESOP organized as an S corporation (which is most of them) by the nonprofit National Center for Employee Ownership, employees had about $132,000 in their ESOP accounts and almost always had a 401(k) plan too. By contrast employees in comparable companies that had a retirement plan (and many do not) had about $67,000 in their 401(k) plan (their only plan), two-thirds of which was money they had contributed, while almost all the money in the ESOPs came from employers. In the pandemic, the NCEO found that food industry companies owned by ESOPs laid off 40% as many employees as food industry companies that did not have ESOPs, a finding consistent with data from the General Social Survey’s quadrennial survey since 2002 that show that employee owners are one-third to one-fifth as likely to be laid off, depending on the year of the study. ESOP companies grow about 2.5% per year faster than would have been expected without an ESOP, according to Rutgers researchers, and that better performance is what makes all these numbers possible.

In other words, employee ownership helps companies, workers, and communities thrive. And it is politically popular. We need to talk about it more—and we need to do more. Some states (most notably Colorado) have started active programs to help let business owners know about employee ownership as an option and help fund transitions. In its first year of operation, the number of transactions in the state doubled. Every state should do this. It is a whole lot cheaper than the billions largely thrown away in tax incentives to get companies to relocate or stay put. At the federal level, Congress has been generous with tax incentives, but many business owners are reluctant to use an ESOP for business transition because they often require the seller to take more financial risk than a sale to a third party would. Federal loan support could help cross that bridge. Employee ownership has come a long way, but with a few more pushes, it could become a key part of the economy.

Corey Rosen (crosen@nceo.org) is the founder and senior staff member of the National Center for Employee Ownership (www.nceo.org), a nonprofit membership, information, and research organization. The NCEO is not a lobbying organization. With John Case, he is the coauthor of Ownership: Reinventing Capitalism, Companies, and Who Owns What (Berrett-Kohler, 2023).

Source: CounterPunch