Employee Ownership: An Introduction for Workforce Development Practitioners

In recent years, the concept of employee ownership has gained traction as a crucial strategy for elevating worker voice and building a more equitable economy. Many philanthropies, nonprofits, local and federal government organizations, and social justice advocates have taken great interest in it.

But what is employee ownership, really? And what does it have to do with workforce development?

At the National Fund, employee ownership has always been part of our Job Design Framework, but we have rarely discussed it, or what workforce development practitioners can do to support it. Here’s an introduction to why employee ownership is important, what it is, and how it works.

There are several kinds of employee ownership structures

On the most basic level, an employee-owned company is one where most employees share in its stock ownership. The portion of the company owned by employees varies – sometimes, it can be a minority ownership of 20% or 30%. But in many cases, companies are wholly owned by their workforce.

In practice,  several methods exist for carrying this out. Here are a few of the most common:

Employee stock ownership plans (ESOPs) are a form of shared ownership that is specific to the United States. They share stock ownership with employees through a retirement plan structure, which can exist alongside a 401(k) or the like. ESOPs are highly regulated and confer several tax benefits to participating companies. Employees at ESOP companies automatically increase their ownership over time, in a process called “vesting”. When they leave the company or retire, the company buys their shares back. Publix Super Markets, with over 250,000 employees, is the largest ESOP company in the U.S.

The most common type of employee ownership in the world is the worker cooperative. Worker cooperatives are a highly democratic, inclusive form of organization where the workers in the company own 100% of its stock and have equal voting rights in its governance, including the selection of its board of directors. While we tend to think of worker co-ops as small, the largest one in the U.S., Cooperative Home Care Associates in New York, has over 1,600 employees and the largest co-op in the world, Mondragon, in the Basque region of Spain, has over 80,000.

A new form of employee ownership in the U.S. is the Employee Ownership Trust (EOT). EOTs are created by establishing a trust fund given a mission that must be maintained in perpetuity. In EOTs this mission is employee ownership of the company, which ensures that EOTs will remain employee-owned for a long time, possibly forever. EOTs can also be relatively easy to set up, which makes them a better fit for many small-medium sized companies. The John Lewis Company in the U.K. is a very large and well-established EOT.

Employee ownership is clearly associated with better outcomes for workers

Several studies have emerged in the last few decades that indicate substantial benefits for workers in employee-owned businesses. The most robust of these is the Employee Ownership and Economic Well-Being Study. This longitudinal study utilized Department of Labor data to track a large number of millennial employee-owners over a 10-year period. It then compared them with a similar group of respondents who did not have an ownership stake in their workplace.

The study found that by the end of that time span, the employee-owners had 33% higher incomes, 92% higher household wealth, 53% longer job tenure, and substantially better access to health insurance, tuition support, and other benefits.

These findings largely held up across a wide range of demographic categories, including race, gender, marital status, and parental status. Even low-income workers, defined as making $30,000 per year or less, saw substantial benefits from employee ownership.

A powerful way of elevating worker voice

This may go without saying, but in our society, owners almost always have a bigger microphone than workers. To some degree, employee ownership can shift that dynamic. How much it shifts can vary from one firm to another. Most employee-owned companies have typical management structures. But because their employees are owners they have strong incentives to consider open-book management, human-centered design approaches to job quality, or other measures that enhance worker voice.

There are more employee-owned companies than you think

While employee ownership is still relatively rare, it’s also more common than most people realize. In the U.S. alone, there are almost 6,500 ESOPs, and up to 4,000 more companies that offer other kinds of employee ownership plans. While some are large, most employee-owned companies are in the small-medium size range — which is the kind of company workforce developers are most likely to partner with. Here are some notable employee-owned companies that are close to, or already engaged with, the National Fund:

If you want to connect with more employee-owned companies near you, two great resources are Certified Employee Owned and the Employee Ownership Expansion Center. The former is a member organization that certifies employee-owned companies and maintains an updated list of them across the country. The latter is a coalition of centers across the country that provide free education sessions about the benefits of employee ownership for business leaders, workers, and communities.

Hopefully, this brief overview provides a useful snapshot of employee ownership, how it works, and how you can begin to engage with local employee-owned businesses. In my next post, I’ll share some approaches for deepening work with employee-owned firms and stories about interesting experiments on the ground.

Tom Strong

-- Director of Employer Activation, National Fund for Workforce Solutions