ESOP Firms Fare Better: Where are the Presidential Candidates?

Employee stock ownership plan (ESOP) companies saw an economic upturn in 2011, with higher productivity and stock price, according to a recent survey. Why aren’t the Presidential candidates pushing the benefits of employee ownership and participation?A large majority (over 93% of survey respondents) reported that creating employee ownership through an ESOP was “a good business decision that has helped the company.” That figure has consistently been over 85% since 2000. The average age of the ESOP was 16 years with the average year for establishment being 1996. In addition, 76% of respondents indicated the ESOP positively affected the overall productivity of the employees. Other fidings:

  • 70.5% of respondents reported profitability increased,
  • 76.2% of respondents noted revenue increased,
  • 80%, stated the company’s stock value increased as determined by outside independent valuations.

According to Employee Ownership Foundation President J. Michael Keeling:

In looking at past results, it’s interesting to see performance numbers in a significant reverse of what was reported a few years ago during the Great Recession.  Employees with employee stock ownership, including those with ESOPs, in general, have more sustainable employment. Hopefully our national leaders, including… those running for President… will take note and understand that we need national policies to encourage employee stock ownership among working Americans.

The survey asked companies to indicate their performance in 2011 relative to 2010:

  • 68.5% indicated a better performance; 17% indicated a worse performance; and 14.5% indicated a nearly identical performance to the previous year
  • 76.2% indicated revenue increased; 23.8% indicated revenue decreased
  • 70.5% indicated profitability increased; 29.5% indicated profitability decreased
  • 63.8% of companies indicated they have created an ESOP education program or ESOP advisory committee since establishing the ESOP

The 2012 Economic Performance Survey was distributed to The ESOP Association’s over 1,400 members in June 2012. The results are based on 450 responses, a 32% response rate.

The Employee Ownership Foundation is The ESOP Association’s affiliated 501 (c)(3) organization dedicated to promoting employee ownership.

According to a 2010 National Center for Employee Ownership (NCEO) analysis of ESOP company government filings in 2008, the average ESOP participant receives about $4,443 per year in company contributions to the ESOP and has an account balance of $55,836. People in the plan for many years would have much larger balances. In addition, 56% of the ESOP companies have at least one additional employee retirement plan. By contrast, only about 44% of all companies otherwise comparable to ESOPs have any retirement plan, and many of these are funded entirely by employees.

A new NCEO study of equity compensation in global companies finds that participation in stock purchase plans has declined since 2007. A majority of the companies that reported levels of participation between 26% and 50% now say that rates have fallen to 0% to 25%. The NCEO has previously found that a key determinant of stock purchase plan participation is past stock price performance, even though the economically rational approach would be to buy more when prices are low. Instead, employees tend to build expectations of future growth based on their most recent experiences. The study also reports data on trends in the number of companies offering equity plans, the kinds of equity offered, and tax and compliance issues.

The movie Shift Change had its world premiere in Oakland on October 18. The film shows the connections between the Mondragon cooperatives in Spain’s Basque country and a number of U.S. worker cooperatives and coop incubation efforts, such as the Evergreen cooperatives (“the Cleveland initiative”) and Women’s Action to Gain Economic Security.

With all the positive impacts of ESOPS, where are the Presidential candidates? The best indicator I could find was the following September statement from The ESOP Association:

President Obama said once at a “town hall” like meeting in Virginia, where he gave a general explanation of what an ESOP is, that employee ownership should be encouraged. Governor Romney when visiting an ESOP company in New Hampshire said he thought it was good for employees to have “skin in the game.”

But neither said anything to indicate that he would openly and sincerely push for laws to encourage ESOP creation and operation, or even to protect current beneficial ESOP laws, as President Ronald Reagan did. Nor has either released a statement specifically endorsing ESOPs as Senator John McCain did when he was running for President in 2008.

Both are missing an opportunity to connect with voters. Just as we need more input and participation by shareowners, we also need the same from employees if we are to create the most effective corporate governance we can.

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