Employee Ownership Foundation

Charting Your Own Future

"We understand that a well managed employee-owned company is not a destination, it is a journey..."

- J. Michael Keeling,
President of The ESOP Association

Find your own way

History of Employee Ownership

Employee stock ownership is not a "new" development in the U.S. Having employees own directly, or indirectly stock in the company where they work is a very traditional and honored policy in the U.S. In the mid-19th Century, as the U.S. transitioned to an industrial economy with nationwide corporations such as Procter & Gamble, Railway Express, Sears & Roebuck, leaders of these corporations recognized that someone could work for the companies for 20 plus years, reach an old age, and then have no income after they could no longer work. The leaders of those 19th Century companies decided to set aside stock in the company that would be given to the employee when she or he retired.
In fact in the early 20th Century, when the U.S. sanctioned an income tax on all citizens, one of the biggest debates was under the then new U.S. income laws how to treat stock set aside for an employee by its employer.

There are several arrangements that result in employee stock ownership in the U.S., and the ESOP is just one example, or model, although a very successful model.

Employees can own stock in the company where they work either directly by just purchasing it. Employees can be owners in the company where they work by working in an employee-owned cooperative, by being awarded stock options that are converted to stock at some point, by participating in a stock purchase plan where they work, by participating in a 401(k) plan that has company stock as part of its assets, or by being a participant in a company sponsored ESOP.

No other nation in the world has laws that sanction an arrangement that is the same as the U.S. ESOP.  Both the ESOP model, and company stock ownership in a 40I(k) plan are tied to the unique U.S. system of private retirement savings plans.  In the U.S., there is no requirement that a private sector employer provide retirement savings plans for employees. Employees participating in an ESOP, or a 40I(k) plan, do not own the company stock directly, but receive the stock, generally, when they retire, die, become disabled, or leave the company to work elsewhere.

The broad-based employee stock purchase model was developed in the mid_20th Century as primarily a way to align employee interests with the employer's. Typically the employee has money withheld from his or her pay check to "purchase" company stock at a set price. Normally, the employee cannot "sell" his or her stock whenever she wishes, but there are exceptions to this approach in some stock purchase companies. One of the more famous U.S. companies with stock purchase is the successful airline company Southwest Airlines.

While providing high paid executives with stock options developed in the 20th century, providing to a broad-based employees stock options really took off with the dot.com boom in the U.S., particularly in companies based near San Francisco, California, in the 80s and 90s. In a broad-based stock option program, all company employees are given an option to buy their company stock at a set price, and then a few years later, the employee can buy the stock at a price lower than the market value of the stock, and thus have a significant financial gain. Famous companies with successful broad-based stock option programs are Microsoft, and Google.

The worker owned cooperative, or co-op model has been in the U.S. for a long time as well. Technically, a co-op is not a stock company, and each employee has more or less equal ownership, and equal voice in selecting co-op leaders and managers. For many, the worker owned co-op is the "true" employee ownership model, as it confers a high level of worker control with worker ownership. For several reasons, however, worker owned co-ops have never been a major force in the U.S. economy, and tend to exist, when they do exist, in small employers, often with no more than 20 employees.  There are more successful models of worker-owned co-ops in Europe than in the U.S.

The average North American, and decision makers in the U.S., plus the media, do not realize how much employee stock ownership there is in the U.S. Our Employee Ownership Foundation helps pay for a massive survey every four years conducted by the University of Chicago that has questions about employee ownership. The latest data indicates that approximately 30% of the U.S. private sector work force have some kind of stock ownership in the models I mentioned above. The same survey shows that another 15% to 20% share in some kind of cash profit sharing plan, or what one would call in Europe, financial participation, and what some in the U.S. call "shared capitalism".

In other words, it is easy to say that employees in the U.S. participate in shared capitalism programs valued at several trillion euros.

We beleive in the ESOP model. It is the most successful, and most sustainable form of employee stock ownership in the U.S. Over the past 30 plus years, the ESOP has transferred more ownership at a higher percentage of the total equity of the companies to average pay employees than any other model of employee ownership.


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© Employee Ownership Foundation 2017