Corporate Performance

  1. 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.

  1. 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). 

Finally, in the summer of 2011, the Employee Ownership Foundation released its 20th Annual Economic Performance Survey (EPS), that evidenced a very high percentage of companies, 92.21%, declared that creating employee ownership through an ESOP (employee stockownership plan) was “a good decision that has helped the company.”

  1. 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.
  2. 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. 
  3. 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.
  4. Research done by the Washington State Department of Community, Trade and Economic Development of over 100 Washington not publicly-traded ESOP companies compared to 500 not publicly-traded non-ESOP companies showed that the ESOP companies paid better benefits, had twice the retirement income for employees, and paid higher wages than their non-ESOP counterparts. Wealth and Income Consequences of Employee Ownership: A Comparative Study from Washington State, Kardas,  Peter A., Scharf, Adria L., Keogh, Jim, November, 1998.
  5. In 1995, Douglas Kruse of Rutgers University examined several different studies between ESOPs and productivity growth.  Kruse found through an analysis of all studies that "positive and significant coefficients [are found] much more often than would be expected if there were no true relation between ESOPs and productivity."  Kruse concludes that "the average estimated productivity difference between ESOP and non-ESOP firms is 5.3%, while the average estimated pre/post-adoption difference is 4.4% and the post-adoption growth rate is 0.6% higher in ESOP firms.  Kruse cites two studies as part of his research: Kumbhakar and Dunbar's 1993 study of 123 public firms and Mitchell's 1990 study of 495 U.S. business units in public firms.  Both reports found significant positive effects of greater productivity and profitability in the first few years after a company adopted an ESOP.
  6. In 1995, the U.S. Department of Labor released a study entitled "The Financial and Non-Financial Returns to Innovative Workplace Practices: A Critical Review."  This study found that companies that seek employee participation, give employees company stock, and train employees, can positively affect American corporations' bottom lines.  In addition, the report cited three studies that analyzed "the market reaction to announcements of ESOPs which found significant positive returns to firms which implemented ESOPs as part of a broader employee benefit or wage concession plan."  The three studies are: Chang's 1990 "Employee Stock Ownership Plans and Shareholder Wealth: An Empirical Investigation," Dhillon and Ramirez' 1994 "Employee Stock Ownership and Corporate Control," and Gordon and Pound's 1990 "ESOPs and Corporate Control." citation at (202) 293-2971 or E-mail: esop@esopassocation.org.

For additional information about ESOP or The ESOP Association, visit the website at www.esopassociation.org, call 1-866-366-3832, or email esop@esopassociation.org.