The Fundamentals of Employee Ownership

1. The History of Employee Ownership

2. Employee Ownership Basics

3. Benefits of Employee Ownership

4. How Common Is Employee Ownership?

One of the fundamental building blocks of The Great Game of Business^® is the concept of providing A Stake in the Outcome®. This approach motivates members of an organization to elevate their performance because they will personally benefit when the organization thrives.

One way to provide a stake in the outcome is through bonus incentives. Another is what is called equity sharing, where employees actually own a piece of the company. The right to benefit from the company’s success causes staff members to start seeing things differently— to see the business more like an owner would.

The History of Employee Ownership

The concept of employee ownership is not new. In fact, it dates back to the mid-1800s when corporations like Procter & Gamble and Sears & Roebuck set aside stock to provide employees with income after retirement. Today, proponents of employee ownership believe that the model helps align employee interests with those of the employer, and that that alignment promotes business growth.

In response to increased interest in and implementation of employee ownership scenarios, the federal government has written laws to address how they are handled with regard to taxes. The additional clarity that these regulations have provided has allowed the idea of employee ownership to proliferate, and various methods and plans have been developed both for setting up and maintaining this type of business model.

Employee Ownership Basics

Employee ownership is the broad concept of staff members owning clearly defined portions of a company. This ownership can include all employees or just some, can be direct or indirect, and can be partial or complete.

Indirect ownership refers to situations in which stock is held in a trust or account for employees to benefit from upon exit or retirement. Unlike a work cooperative, control of company equity doesn’t have to be evenly distributed. Other distinguishing traits that set apart employee ownership are that employees are not required to join and only workers can have ownership. “Employee owned” doesn’t necessarily mean that the workers actually run and manage the organization. Supervisors, managers, and executives are in place as with any company.

Employee ownership can be granted by various methods including employee stock ownership plans (ESOPs), direct purchase plans, stock option plans, employee stock purchase plans (ESPPs), restricted stock plans, phantom stock plans, stock appreciation rights, and 401(k) combined ESOP. The most highly regarded of these, the ESOP, is a retirement plan that requires no upfront cost to employees. Participation in an ESOP is indirect, as plan participants do not directly own the stock. Instead, it is held on behalf of the individual.

Benefits of Employee Ownership

Both employees and their companies benefit from employee ownership arrangements. For employees, the ownership share provides incentive to work hard and make significant contributions. Knowing that your share of the company is accruing value is a powerful motivator.

For employers, the sustained growth and increased profitability that comes with employee engagement, empowerment, and productivity is a significant benefit. And while the risk that the company may underperform is a potential disincentive to employees to take an ownership stake, that risk actually proves to be further motivation toward greater engagement.

How Common Is Employee Ownership?

In the U.S., over 25 million employees across thousands of companies are employee owners. These organizations range from small employers with only a few people on staff to large, well-known companies like Hy-Vee and New Belgium Brewing. There has been a positive move toward employee empowerment in recent years and granting an ownership stake is one of the ways companies are achieving that. Trends show an increasing number of employees participating in employee-owned companies each year and this growth is expected to continue.

In today’s competitive economy, employee ownership and the powerful motivation it provides is proving to be a win-win for companies and their staff members.