Employee Stock Ownership Plans

• Most commonly, Employee Stock Ownership Plans are offered to employees of a company as part of a benefits package. The stock can be obtained by employees through a profit-sharing plan, may be given directly to employees as a bonus in the form of stock options or shares, or employees may have the opportunity to buy stock from the company at any time. The ESOP is the most common form of employee ownership in the United States, and is used to reward and motivate employees and, ideally, increase economic performance. According to the National Center for Employee Ownership, roughly 11,000 companies have an ESOP benefiting more than 13 million employees.
  
  

Effects

• Cory Rosen, Executive Director of the NCEO, wrote in his 2007 book "Guide to Doing Academic Research on Employee Ownership" that some of the most significant studies on the relationship between employee stock ownership and corporate performance have revealed enhanced company functioning when employee ownership is combined with a management style consistent with high levels of employee involvement. Overall, data compiled amongst the numerous studies have shown that ESOPs add considerable wealth to employees, and employee-owned corporations generally enjoy higher value added per employee.
  
  

Studies

• Two separate studies conducted over the course of nearly 20 years from 1985 to 2002 looked specifically at the relationship between employee stock ownership and corporate performance. The researchers compared the performance of public companies that offered stock option plans (with over 50 percent of full-time employees participating) to comparable companies with no ESOP. Both studies found that the employee-owned companies saw a rise in productivity of 13 to 15 percent after the implementation of an ESOP. As of 2011, the largest study to date was completed in 2000 by Douglas Kruse and Joseph Blasi, both of Rutgers University. Their research revealed that ESOPs stimulated an increase of 2.3 to 2.4 percent in employment, overall sales and sales per employee when pre-ESOP corporate performance was compared to post-ESOP performance.
  
  

Ownership Culture

• For a company to realize the benefits of employee stock ownership, it must go beyond simply establishing an ESOP to establishing an "ownership culture." The typical employee-owned company is privately-held (no public sale of stock) and modestly-sized, generally with 100 to 300 employees. These companies are not usually household names, but rather, companies that likely started off as Mom and Pop ventures and through development of an ownership culture, generated more employee/shareholder wealth and were more productive than their peers. Thanks to the ownership edge, these companies are more likely to outlast the competition.