Employee Owned Companies
Employee-Owned Business: A Path into the Future
In today’s capitalist world, with huge corporations in towering skyscrapers, there is nothing that the modern consumer cannot get. Capitalism has given us a choice and freedom, and jobs with relative security. But capitalism, like any other seemingly beautiful thing, has its ugly side. A side with exploitation and bureaucratic distance between corporate big shots and the ‘common’ employee.
We’d think that any attempt to bridge this gap would be futile and pointless. Is it possible to prioritize the integration of employees into the companies that they work alongside the overall well-being and prosperity of the company? Well, companies like Publix and Packard have taken steps to mend the gap by becoming Employee-Owned Companies.
An Employee Owned Company, better known as an Employee Stock Ownership Plan (ESOP), is a type of employee benefit plan that encourages employees to acquire stocks or ownership in the company. ESOPs function in a reasonably straightforward way and are held accountable by certain strict rules to ensure that the ownership stakes are divided among employees fairly and equitably. In return, companies and their owners get a rather substantial tax incentive.
To become employee-owned, a company needs to set up a trust to which it makes annual contributions. These are then given to the individual employee accounts within the trust. The plan acts as an additional benefit for employees. Stocks remain in the ESOP trust until the options vests, and the employee exercises them or the employee leaves or retires from the company. Once an employee leaves, the stock they own is sold, and they also receive the profits based on how much they had vested in the plan.
The Benefits of Being an Employee-Owned Company:
Employee-owned businesses have been proven to be an advantage to both the employer as well as the employee by increasing overall productivity, motivation, morale, and enthusiasm. According to the Employee Ownership Foundation's 21st Annual Economic Survey of ESOP Companies, 76% of the respondents indicated that ESOPs positively affected the productivity of the employees and that both profitability and revenue went up from the previous years since being an Employee-owned company. To further elucidate, here is a list of benefits that come from being an employee-owned company:
ESOP Increase Incentives:
Zig Ziglar said, “You don’t build a business. You build people, and people build the business.”
When employees feel that they can share new ideas, devise new ways to work together more efficiently, take on responsibility for customer satisfaction - when they feel responsible for the company that they work for, they have more to lose and therefore more to gain or an added incentive to do well.
Benefits such as flexible working hours and schedules, retirement plans, parental leave, tuition reimbursement, and so on are also likely to be more accessible by employee-owners. Approximately 23% of employee-owners have access to childcare benefits, compared to 5% of non-employee-owners. Publix - the largest employee-owned company in America, in 2014, sent a memo to employees announcing that same-sex couples legally married in any state would be eligible for its benefit plans, including health insurance - a huge step in terms of gender equality.
For employees, ESOP is also a benefit that helps them accumulate retirement savings - a huge incentive as only about a third of employees, i.e., 37% of them, believe that they will be financially prepared for a comfortable retirement. Knowing that these plans can significantly impact their retirement savings, keeps employees at ESOPs in high spirits, and more optimistic in general.
Happy Workers, Better Working:
Darren Dahl at Forbes. “Employee-owned companies tear down the walls that have traditionally pitted management against labor, which typically results in a very collaborative and transparent culture where everyone is pulling for the same goals.”
With Employee-Owned businesses, employees are more a part of the work process and thus feel better about going to work. Their investment, both literally and metaphorically, in the company reduces alienation from their work, keeping employees more engaged and productive.
In a significant study of ESOPs by Corey Rosen and Michael Quarrey, in the Harvard Business Review, they found that ESOPs exert a positive influence on corporate performance. They say that when people have some amount of control over the conditions of their work, they tend to work more and in turn tend to work better.
Take, for instance, Cost Cutter Stores - a grocery chain based in Bellingham, Washington. Here, just the adoption of the ESOP increased the employee expectations pertaining to their role within the company. It also got the management side of the business to integrate the employees better and get them more involved. The productivity of Cost Cutter was so high that Associated Grocers reported that the company was “off the charts.”
The Escape Plan:
Finally, ESOPs also offer the owner or owners of small businesses an easy way to leave while also providing continuity and preserving the culture of the business.
Packard is a company that believes in the idea that its employees are like a family. Over the years, they’ve had two acquisition attempts and several other offers that they walked away from as they did not want the people that the company came along with. Both Susan Kirkland, President of Packard and Tom Campbell, CEO, and Chairman of the Board, believes that their employees are as responsible for the success of the company as they are and therefore took the decision to become an ESOP company.
ESOP companies considerably aid growth by creating jobs and strengthening communities. According to NECO, it is also a highly cost-effective way to retain and create jobs, increase wealth for a broad sector of workers, and keep businesses in their communities. ESOPs also generate approximately 2.5% more new jobs per year than they would have if they hadn’t been ESOP. In addition to encouraging economic growth, ESOP companies also tend to grow faster than other companies.
A study looked at data of 45 companies in the five years before they instituted their ESOPs and found that, on average, they had grown moderately faster than the other comparable companies. In the five years after instituting the plan, however, their annual growth outstripped that of the comparison companies by 5.05%, while sales growth was 5.4% faster. Furthermore, about 73% of the ESOP companies significantly improved their performance after they set up their plans.
Take, for instance, Publix. It employs over 190,000 people and has a chain of more than 1200 supermarkets in the south-east. Publix has essentially created a hammerlock in the Florida market, where its 755 stores out of its total stores, more than double any rival store. The editor of Supermarket New, Mark Hamstra, even said that they had blanketed the state so thoroughly that it has made it difficult for anyone else to make inroads. Publix is also one of the few grocers to have gotten bigger and stronger in the Walmart era.
The proof is in the pudding as ESOPs are a fantastic new way to bring together employees and management, increase productivity, and lead us into the future as a successful business model.