Employee Ownership Basics

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What is Employee Ownership?

Employee ownership is a business model where employees hold significant ownership stakes in the company they work for. This can occur through direct stock ownership or programs like Employee Stock Ownership Plans (ESOPs). Employees benefit not only from their wages but also from the company’s financial success, fostering a vested interest in its performance. This structure encourages shared responsibility, long-term job security, and often promotes a collaborative culture, driving both individual and organizational success.

 

What is an ESOP? 

ESOPAn Employee Stock Ownership Plan (ESOP) is a retirement plan that allows employees to become owners of their company by acquiring stock. Typically, the company sets up a trust that holds shares, which are gradually allocated to employees over time. As employees gain ownership, they benefit from the company’s success through increased share value. ESOPs promote employee engagement and long-term loyalty, and research shows that ESOP companies often outperform traditional firms in productivity, retention, and overall business performance by aligning employee and company goals.

 

 

 

What is a Worker Cooperative?

A Worker Cooperative is a business model where the employees have an opportunity to become worker-owners by purchasing a share in the business. This ownership stake entitles them to a portion of the company’s profits.  Additionally, it grants each worker-owner one vote in electing the board of directors and participation in major decisions that shape the direction of the cooperative. Although the structure works for any size company, it is commonly used in smaller companies.  

Watch a video on how the business owner's legacy impacts a community.

 

Why Does Employee Ownership Matter? 

Employee ownership matters because it enhances engagement, commitment, and collaboration by giving employees a direct stake in the company’s success. It promotes long-term job security, often leads to higher wages, and helps employees build wealth through their ownership stakes. Companies with employee ownership, particularly those with ESOPs, tend to perform better, demonstrate greater resilience during economic challenges, and have higher employee retention rates. The alignment of employee and company interests also fosters a shared sense of purpose and responsibility, leading to sustained organizational success.

 

Understanding the Impact of Employee Ownership: Key Findings

MeetingRecent research highlights the significant benefits of employee ownership through ESOPs, both for employees and companies. Studies show that employee-owned companies often outperform their peers in terms of productivity, job stability, and workforce retention. Employees in ESOP companies typically enjoy better wages, improved retirement benefits, and long-term job security. ESOPs also foster a culture of collaboration and shared purpose, driving personal and organizational growth. The latest research reinforces the idea that employee ownership can transform businesses, offering a sustainable path to success and stability.

 

 

Advantages of Employee Ownership 

stocksEmployee ownership offers a range of advantages for both employees and businesses:

  • Increased Productivity: Employees who have a stake in the company are more motivated and engaged, leading to higher productivity and better overall performance.
  • Enhanced Retention: Employee-owned companies often experience lower turnover rates, as employees feel more invested in the company’s long-term success.
  • Financial Benefits: Employees can build wealth through their ownership stakes, contributing to greater financial security and retirement savings.
  • Business Resilience: Employee-owned companies tend to be more stable and resilient during economic downturns.
  • Collaborative Culture: Ownership fosters a sense of shared responsibility, teamwork, and a stronger organizational culture.

 


These findings emphasize the transformative potential of employee ownership in fostering a more motivated, financially secure, and resilient workforce while driving business success. For more detailed insights, refer to the Rutgers University research brief on employee ownership and ESOPs.

 

Employee Ownership Impact

 

In this video, learn about the powerful benefits of employee ownership. Discover how employee ownership not only serves as an effective succession plan for business owners but also strengthens local communities by promoting economic resilience. The Iowa Center for Employee Ownership (IA-CEO) is a key resource, providing expert guidance for companies considering the transition to employee ownership. Explore how this model can secure your business's future while empowering employees and contributing to a stronger economy in Iowa.

Video credits: Weicks Media

Introduction to Employee Ownership

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A ‘Silver Tsunami’ is Hitting Rural America as Small Business Owners Retire Without Replacements

Over half of the businesses in the U.S. are owned by Baby Boomers and in a recent study, 75% of business owners would like to exit their businesses within the next 10 years.

Read the full article below to see how this has already started to impact and will continue to reshape communities across the Midwest and Great Plains in the coming years.

Industries of Privately Held ESOP Companies 

Industries of Privately Held ESOP Companies chart

Employee Ownership - BY THE NUMBERS


ESOPs cover 14.7 million participants, of whom over 10.7 million are active participants—those currently employed and covered by an ESOP. - NCEO / National Center for Employee Ownership

Top 10 ESOP Advantages

Advantage #1

Owners Selling to a C corporation ESOP can indefinitely defer taxation, unlike non-ESOP sales

Advantage #2

Owners can sell any amount to an ESOP; most non-ESOP buyers only want to buy 100% of the company

Advantage #3

If there are multiple owners, an ESOP can buy from only one; non-ESOP buyers usually want everyone to sell so they are the sole owner

Advantage #4

Owners can sell to the ESOP at their own pace over a period of years and retain a role at the company

Advantage #5

Only an ESOP can use pretax dollars to buy out owners; other buyers would use after-tax dollars

Advantage #6

An S corporation ESOP shields the company from taxes (the ESOP is tax-exempt, with no taxes to fund)

Advantage #7

The company retains its identity after the sale, whereas a non-ESOP sale may destroy the owner's legacy

Advantage #8

The employees who helped build the company can now be rewarded through ESOP ownership

Advantage #9

ESOPs can improve corporate performance when combined with high-involvement work cultures

Advantage #10

ESOPs add to employee retirement security, from preserving jobs to enhancing retirement assets

According to NCEO / National Center for Employee Ownership