What is Employee Ownership Month?

Employee Ownership Month is an annual celebration of employee ownership. The National Center for Employee Ownership (NCEO) started celebrating the occasion as a week-long event internally in 1982. The organization mailed cards to all its members to attract attention and celebrate the occasion.

Eventually, the organization launched a poster contest for Employee Ownership Week, attracting the attention of The ESOP Association. From there, the observance expanded to last for an entire month. Now, the annual event serves as a time to educate companies about the benefits of employee ownership and to encourage employees to participate in their employers’ ownership opportunities. Companies may choose to celebrate by sending gifts to employees, holding competitions, hosting events or inviting lawmakers to visit their corporate offices.

What does employee-owned mean?

A company is employee-owned if its employees own some of its stock. This type of arrangement lets employees share in the financial success of their companies. The NCEO reports that there are more than 6,400 employee-owned companies in the U.S. and that together, these organizations hold total assets of over $1.6 trillion. Some of the largest employee-owned businesses in the U.S. include:

• Publix Supermarkets
• WinCo Foods
• Brookshire Grocery Company
• Houchen Industries
• HDR, Inc.
• W.L. Gore & Associates
• Amsted Industries
• Black & Veatch
• Davey Tree Expert
• Burns & McDonnell Engineering

Each of these businesses boasts more than 10,000 employees. However, employee ownership isn’t just for large corporations. Some small businesses are also employee-owned.

What Are the Different Types of Employee Ownership?

There are three main types of employee ownership: employee stock ownership plans (ESOPs), equity compensation plans and worker cooperatives.

ESOPs

ESOPs are the most common type of employee ownership, with an estimated 14 million U.S. employees participating. An ESOP is a type of retirement plan in which a company establishes a trust and then uses it to purchase shares of stock. Then, the trust divides shares among employees based on factors such as seniority, contribution to the company and salary levels. Often, employees receive additional shares of stock over time.

Equity Compensation Plans

Equity compensation plans are when companies provide shares of stock as an employee benefit through a means other than an ESOP. There are several different types, including:

• Employee stock options: Employees receive the option to purchase a set number of shares of stock in the company at a discounted price for a limited time.
• Restricted stock units (RSUs): Employees receive stock units that initially have no value. After a specified period, the RSUs become vested. At this point, the employees gain full ownership of the stock shares that have a financial value equivalent to the share price of the stock.
• Restricted stock awards (RSAs): Employees receive full ownership of stock units right away. Like RSUs, RSAs have no financial value until the stock becomes vested.
• Performance shares: Employees receive shares of stock when they exceed established performance targets.
• Stock appreciation rights (SARs): Employees can receive cash payments in lieu of stock if a company’s share price increases over a set period.
• Phantom stock: Employees receive phantom stocks, which aren’t actual shares of the company but follow their pricing trends. When the actual stock price increases over a set period, employees receive cash payments accordingly.
• Employee stock purchase plans (ESPPs): Employees can buy stock at a discounted rate through post-tax payroll deductions.

Worker cooperatives

In a worker cooperative, the employees of the company are also its owners. They use voting systems to make business decisions and elect the board of directors. Typically, at least one employee also sits on the board.

The Democracy at Work Institute estimates there are 900 to 1,000 worker cooperatives in the U.S. The largest known worker coop is Cooperative Home Care Associates (CHCA), a home care service provider with more than 2,000 employee-owners. Normally, worker cooperatives are much smaller businesses. The median size workforce for coops is six employees.

What are the benefits of employee ownership?

Employee ownership offers numerous benefits for companies, such as:

• Better workplace morale: When employees share ownership in the company, they may feel more valued. The feeling that they are directly benefiting from their own labor may lead to an overall more positive outlook on their work.
• Tax benefits: ESOPs and some equity compensation plans may qualify for tax deductions and provide other tax benefits for companies.
• Improved productivity: Employees may feel more motivated to meet and exceed performance benchmarks when their financial success is tied to the company’s success.
• Increased employee retention: Employees who receive periodic stock shares through ESOPs or forms of equity compensation that become vested may stay with their company for longer to reap greater financial rewards.
• Stronger recruitment efforts: Employee ownership is a selling point employers can emphasize during negotiations with quality candidates.

Employees also benefit from employee ownership through:

• Increased total compensation: Employee ownership usually increases the total compensation of workers and may allow them to enjoy a higher standard of living.
• Retirement savings: ESOPs and some equity compensation plans allow employees to save money for retirement.
• Improved feelings of job security: Employee ownership lets workers better visualize the success of the companies that employ them and may make them feel more secure about their financial futures.
• Recognition of their contributions: When companies tie employee ownership to tenure, seniority or performance, employees get the message that their employers value their contributions and loyalty to the company.
• Tax benefits: In some cases, money that employees pay for stock out of pocket through a qualified equity compensation plan may be tax-deferred or deductible.
• Voice in decision-making: As owners of stock, employees may be able to vote on some issues. In cooperatives, workers completely control the companies they work for.

Tips for starting an employee ownership program

Employee Ownership Month is a great time to consider launching an employee ownership program for your company. These tips can help you get started:

1. Enlist the help of a professional

Laws and regulations regarding ESOPs and other types of employee ownership are complex. Getting the help of a financial advisor with expertise in employee ownership can help ensure that you comply fully with all requirements. An advisor can discuss the various types of employee ownership and help you determine which is most advantageous to you. They can also assist you with filing the necessary paperwork to get your program up and running.

2. Make sure you’re ready for full transparency

When your employees become partial owners of your company, you have a duty to keep them fully informed about your financial outlook. Establish a system of internal reporting that allows full transparency. Share the good news along with the bad to foster trust among your team. You should also be transparent about how you will award shares as a part of overall pay transparency.

3. Promote the program to your employees effectively

Employee ownership programs are often voluntary, so you’ll need buy-in from your team to make yours a success. Offer opportunities for employees to learn about the benefits of your program in informal settings like brown bag lunches. Have your advisor or another expert on hand to answer questions and make sure that you explain the program in easy-to-understand language.