July 30, 2012-

Private employment stock ownership plans (ESOPs) are thriving. That’s according to a study by a former advisor to the Simpson-Bowles bipartisan deficit reduction commission and a fellow at the American Enterprise Institute.

Economist Alex Brill, who conducted 2012 study, found that ESOPs as S corporations grew their jobs by 60 percent over this past decade. Of course, such a rate of growth is really an anomaly.

Other private-sector employment rolls have been stagnant.

“The unique strengths of employee ownership drove company gains and jobs in the past decade, while helping insulate S-ESOP businesses from the adverse effects of the recent recession,” wrote Mr. Brill in the study.

It’s entitled, “An Analysis of the Benefits S-ESOPs Provide to the U.S. Economy and Workforce.”

ESOPs are tax-exempt retirement plans that consist of company stock held on behalf of the company’s employees.

They are company-funded retirement plans that do not require any contribution from workers.

Congress first changed U.S. tax rules to allow S corporation businesses to be ESOP-owned in 1998. There are more than 11,000 ESOPs in the U.S.

Mr. Brill studied a decade’s worth of data from 56 ESOPs, and Labor Department figures from 2002 to 2009.

The study’s salient results:

  1. S-ESOP companies showed substantially more employment growth in the pre-2008 recession period than private businesses.
  2. S-ESOP companies regained momentum faster than other private firms after the recession.
  3. S-ESOP companies in the manufacturing sector particularly benefited from the S-ESOP business structure, which buffered manufacturers through especially challenging recent economic times.

It’s generally believed that ESOP workers are substantially more invested in the success of their workplaces. They know it will affect their own economic well-being.

A University of Pennsylvania study earlier showed that S-ESOP companies generate about $14 billion in retirement savings for their workers that otherwise wouldn’t have been possible.

If a company has a positive workplace culture, an ESOP is worth considering as a good exit strategy for a retiring business owner.

From the Coach’s Corner, one of the nation’s most publicized ESOPs, United Airlines (UAL), was an exception to the success of the other ESOP success stories.

UAL became an employee-owned public company, 55 percent of the shares, in 1994. Employees gave up some $700 million in wages and conceded some work rules. In exchange, the workers bought out the boss and stockholders.

But clearly since then, UAL has had a turbulent history. It’s been unprofitable with passenger-service issues and an unhappy workforce. In essence, UAL has taught us several lessons in strategic planning. (See Strategic Planning Lessons: Why United Airlines Was Forced to Merge with Continental.) 

“If you mean to profit, learn to please.”

-Winston Churchill 


Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.