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ESOP Fact Sheet
Employee Ownership & Corporate Performance
- There are approximately 10,000 ESOPs in place in the U.S., covering 10.3 million employees (10% of the private sector workforce).
- The size of a company’s annual contribution to its ESOP has been found to be a key factor in determining the extent to which ESOPs are believed to have a positive impact on employee owners’ attitudes toward their work. In 2015, on average, companies contributed 11.8% annually to the ESOP. The numbers also show that 59.7% of companies are contributing 6% or more annually and 40.3% contribute over 10% annually to the ESOP. These contribution numbers indicate that a majority of ESOPs are making significant contributions to employee owners’ accounts.
- The growth of ESOP formation has been influenced by federal legislation. While the rapid increase in new ESOPs in the late 1980s subsided after Congress removed certain tax incentives in 1989, the overall number has remained steady with new plans replacing terminated ESOPs. Currently, it is estimated that there are approximately 10,000 ESOPs in place in the U.S. However, there is no precise way to measure this figure accurately since the overwhelming majority of ESOP companies are privately held and do not file public reports with the SEC.
- About 330 ESOPs - 3% - are in publicly traded companies.
- An estimated 7,000 of the 10,000 companies have ESOPs that are large enough to be a major factor in the corporation's strategy and culture.
- Approximately 5,000 ESOP companies are majority-owned by the ESOP.
- Approximately 4,000 are 100% owned by the ESOP.
- While ESOPs are found in all industries, 22% of them are in the manufacturing sector.
- At least 75.4% of ESOP companies are or were leveraged, meaning they used borrowed funds to acquire the employer securities held by the ESOP trustee.
- An overwhelming majority of ESOP companies have other retirement and/or savings plans, such as defined benefit pension plans or 401(k) plans, to supplement their ESOP.
- Of the 10,000 employee-owned companies nationwide, fewer than 2% were financially distressed when they established their ESOP.
- Total assets owned by U.S. ESOPs is estimated to be approximately $940 billion at the end of 2011.
Some information obtained from the 2015 Company Survey, conducted among ESOP Association members in 2015.
Founded in 1978, The ESOP Association is the national association of companies with employee stock ownership plans (ESOPs) and service providers with a professional commitment to employee ownership through ESOPs.
The Association is the leading voice in America for employee ownership through ESOPs, and devotes considerable time to creating and maintaining favorable ESOP legislation. In addition, The ESOP Association is a prime source for educational materials necessary for successful implementation and administration of an ESOP.
- The ESOP Association represents approximately 1,600 ESOP companies. Total membership is approximately 2,800.
- Approximately 99% of ESOP Association members are private, closely-held companies.
- ESOPs exist primarily in small businesses – 68% of Association members have less than 250 employees.
- While ESOPs are prevalent in a broad range of industries, approximately 23.4% of Association members are in manufacturing, followed closely by construction (15.3%) and engineering (10.9%).
- Average annual sales revenue for ESOP Association members range is approximately $20 - $50 million.
- Approximately 65% of ESOP Association members report that their ESOPs have been in place for 10 years or more.
- 83.4% of Association members have companies that are more than 50% owned by the ESOP.
- 75.4% of Association members report that their ESOP is currently or was previously leveraged.
- 93.6% of Association members offer a supplemental benefit plan in addition to the ESOP including, 401(k) plans, pension plans, and profit sharing plans.
- Research indicates that ESOP implementation results in more information sharing, increased communications, and involvement in decision making for employee owners.
- 81.9% of Association members advertise the fact they are employee owned.
- 83.3% of ESOP Association members report that motivation and productivity increased as a result of the ESOP.
- ESOP Association members report the average contribution the company makes to the ESOP each year, as a percentage of covered compensation, is 11.8%.
- The average account balance among ESOP Association members is $113,318
Some information obtained from the 2015 Company Survey, conducted among ESOP Association members in 2015.
1. Using data from the 2014 General Social Survey (GSS), an analysis by the National Center for Employee Ownership (NCEO), in partnership with the Employee Ownership Foundation, evidences that employee stock owned companies saved the federal government over $17 billion in 2014. Looking at ESOPs alone, the estimated savings is approximately $8 billion.
The GSS found that 1.3% of employees with employee stock ownership, which includes the ESOP model and other forms of employee ownership, said that they were laid off in the last year compared to a 9.5% rate for employees without employee stock ownership.
The NCEO analysis calculates that 15 million Americans worked for employee stock owned companies in 2014, with 11 million working in companies with ESOPs. Savings from the low layoff rate of ESOP participants was $1.9 billion in 2014, showing that ESOP companies are an investment worth noting.
2. The Employee Ownership Foundation released convincing evidence in February 2012 from the most prestigious social survey in the U.S., the General Social Survey (GSS), that showed employees in the U.S. who had employee stock ownership were four times less likely to be laid off during the Great Recession than employees without employee stock ownership.
Updated GSS figures released in June 2015, found that 1.3% of employees with employee stock ownership, which includes the ESOP model and other forms of employee ownership, said that they were laid off in the last year compared to a 9.5% rate for employees without employee stock ownership.
Additionally, the survey found about 22.9 million U.S. citizens own stock in the companies in which they work.
The Employee Ownership Foundation provided significant funding for the supplemental series of questions on shared capitalism in the survey. Shared capitalism is defined as broad-based employee, current or deferred, stock compensation programs, such as ESOPs (employee stock ownership plans), stock purchases, stock options, gain sharing, profit sharing, and bonus programs. The shared capitalism series of questions were developed and analyzed by well-known employee ownership researchers, Professor Joseph Blasi and Professor Douglas Kruse (School of Management and Labor Relations at Rutgers University) who submitted an application for their inclusion in the GSS. The researchers are continuing to analyze these and other related data from the Survey to shed light on the role of employee stock ownership in the U.S. economy.
3. In the new book, Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing, and Broad-Based Stock Options, edited by Douglas L. Kruse, Richard B. Freeman, and Joseph R. Blasi, the editors list some take away findings on shared capitalism. The book identifies employee stock ownership plans (ESOPs) as a primary model of shared capitalism in the U.S. Below are the summarized findings.
- Shared capitalism is a significant part of the U.S. economic model. Shared capitalism can increase wealth for workers at lower and middle income levels.
- Shared capitalism improves the performance of firms. It is associated with greater attachment, loyalty, and willingness to work hard; lower chance of turnover; worker reports that co-workers work hard and are involved in company issues; and worker suggestions for innovations. Shared capitalism is most effective when combined with employee involvement and decision-making and with other advanced personnel and labor policies.
- Shared capitalism improves the performance of worker well-being. It is associated with greater participation in decision-making; higher pay, benefits, and wealth; greater job security, satisfaction with influence at the workplace, trust in the firm, and assessment of management; and better labor management relations practices. Shared capitalism is most effective when combined with employee involvement and decision-making and with other advanced personnel and labor practices.
- Shared capitalism complements other labor policies and practices. Forms with shared capitalism compensation are more likely to have other worker-friendly labor policies and practices. Combinations of shared capitalist pay and other policies, such as devolving decision-making to employees, wage at or above the market rate, and lower supervisory monitoring, produce the largest benefits for workers and firms.
- The risk of shared capitalism investments in one’s employer is manageable. Portfolio theory suggests employee ownership can be part of an efficient portfolio as long as the overall portfolio is properly diversified. Most workers have modest amounts of employee ownership within the ranges suggested by portfolio theory. Less risky forms of shared capitalism such as cash profit sharing and stock options where workers are paid market wages, or company stock is not financed by worker savings, can be prudently combined with riskier forms where workers purchase stock.
Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing, and Broad-Based Stock Options, edited by Douglas L. Kruse, Richard B. Freeman, and Joseph R. Blasi, The University of Chicago Press, National Bureau of Economic Research, 2010. Above information can be found on page 12.
4. In August 2010, The ESOP Association and the Employee Ownership Foundation released the results of a survey conducted among the Association’s 1,400 corporate members which confirmed positive benchmarks for ESOPs. The eye-opening statistics of the 2010 survey are the increase in age of the ESOP and account balances. In 2010, the average age of the ESOP was reported to be 15 years, demonstrating ESOP companies are sustainable. In addition, the average account balance has risen dramatically to $195,222.65; a high figure compared to most data tracking defined contribution plans which correlates with the age of ESOPs participating in this year’s survey. And approximately 90% of members reported having retirement savings plans in addition to the ESOP including the use of 401(k) plans, pension plans, stock purchase plans, and stock options. In terms of motivation and productivity, 84% of respondents agree that the ESOP improved motivation and productivity. The Company Survey is conducted every five years and was last completed in 2005. Prior to 2005, the survey was completed in 2000.
Also in September 2010, the Employee Ownership Foundation released the results of an extensive study it funded that evidenced that ESOPs provide more employee benefits than non-ESOP companies. The study, which reviewed data from the Department of Labor Form 5500 on defined contribution retirement plans, found:
- ESOP companies have at least one plan, the ESOP, but more than half (56%) have a second retirement savings/defined contribution plan, likely a 401(k) plan. In comparison, the Bureau of Labor statistics reports that 47% of companies have some sort of defined contribution plan which shows that an ESOP company is more than likely to have two defined contribution plans than the average company is to have one plan.
- The average ESOP company contributed $4,443 per active participant; in comparison to a non-ESOP company with a defined contribution plan which contributed on average $2,533 per active participant. This study found that on average ESOP companies contributed over 75% more to their ESOPs than other companies contributed to their primary plan.
The project was done by the National Center for Employee Ownership (NCEO).
In the summer of 2014, the Employee Ownership Foundation released results from the 23rd Annual Economic Performance Survey (EPS) of ESOP companies. Since the Employee Ownership Foundation’s annual economic survey began 23 years ago, a very high percentage, 93% of survey respondents, have consistently agreed that creating employee ownership through an ESOP was “a good business decision that has helped the company.” It should be noted that this figure has been over 85% for the last 14 years the survey has been conducted. In addition, 76% of respondents indicated the ESOP positively affected the overall productivity of the employee owners. In terms of revenue and profitability --- 70% of respondents noted that revenue increased and 64% of respondents reported that profitability increased. In terms of stock value, the majority of respondents, 80%, stated the company’s stock value increased as determined by outside independent valuations; 18% of the respondents reported a decline in share value; 2% reported no change. The survey also asked respondents what year the ESOP was established. Among those responding to this survey, the average age of the ESOP was 16 years with the average year for establishment being 1998.
5. In June 2008, Brent Kramer, a doctoral candidate at the City University of New York, now Ph.D., submitted a study, Employee Ownership and Participation Effects on Firm Outcomes, that “provides strong evidence that majority employee-owned businesses have a significant advantage over comparable traditionally-owned businesses in sales per employee.” The average advantage, $44,500, means that a typical 200 person ESOP firm could be expected to have an almost $9 million annual sales advantage over its non-ESOP counterpart. Sales per employee is the total of a company’s sales divided by the number of employees, and is a commonly used measure of a company’s productivity. Highlights of the study include: 1.) Using standard statistical methods, it was found that the average sales advantage for the ESOP firms in the study was $44,500, or an average of an 8.8% sales per employee advantage over their non-ESOP counterparts in the same industry and of the same size; 2.) It was found that firms that ask for non-management employee input into innovation in work processes have a greater employee-owned advantage in sales per employee; 3.) Kramer’s research indicates the sales per employee advantage for the 50% plus ESOP companies compared to non-ESOP companies is less for larger employers. The Employee Ownership Foundation providing funding for the research and The ESOP Association contributed membership information to the study. A total of 328 ESOP firms and over 2,000 matching non-ESOP firms were included in the study.
6. In January 2007, the co-operative relationship between the Employee Ownership Foundation and the University of Pennsylvania’s Center for Organizational Dynamics led to an important new and “fresh” study of the effectiveness of ESOPs and employee ownership as uncovered in 30 years of scholarly research on the issue. The study, “Effects of ESOP Adoption and Employee Ownership: Thirty Years of Research and Experience,” authored by Dr. Steven F. Freeman, Affiliated Faculty and Visiting Scholar in the Center for Organizational Dynamics, Graduate Division, School of Arts and Sciences at the University of Pennsylvania, confirms what the Association has been saying for years, that employee-owned companies experience increased productivity, profitability, and longevity. To download the study, “Effects of ESOP Adoption and Employee Ownership: Thirty Years of Research and Experience,” please visit the University of Pennsylvania’s Library Digital Archive -http://repository.upenn.edu/od_working_papers/2/. The research was possible thanks to a generous, unrestricted donation to the University by ESOP Association member company, Alliance Holdings Inc. of Willow Grove, PA. Alliance is also a significant donor to the Employee Ownership Foundation, which gives significant donations to the University of Pennsylvania’s Center for Organizational Dynamics Program.
7. The most comprehensive and significant study to date of ESOP performance in closely held companies was conducted by Dr. Joseph R. Blasi and Dr. Douglas L. Kruse, professors at the School of Management and Labor Relations at Rutgers University, and funded in part by the Employee Ownership Foundation. The study, which paired 1,100 ESOP companies with 1,100 comparable non-ESOP companies and followed the businesses for over a decade, reported overwhelmingly positive and remarkable results indicating that ESOPs appear to increase sales, employment, and sales/employee by about 2.3% to 2.4% over what would have been anticipated, absent an ESOP. In addition, Drs. Blasi and Kruse examined whether ESOP companies stayed in business longer than non-ESOP companies and found that 77.9% of the ESOP companies followed as part of the survey survived as compared to 62.3% of the comparable non-ESOP companies. According to Drs. Blasi and Kruse, ESOP companies are also more likely to continue operating as independent companies over the course of several years. Also, it is substantially more probable that ESOP companies have other retirement-oriented benefit plans than comparable non-ESOP companies, such as defined benefit plans, 401(k) plans, and profit sharing plans.
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