Employee stock-ownership plan (ESOP) companies are for-profit entities in which employees own part or all of the businesses for which they work. ESOPs are created through a pension plan with two unique features: 1) most of the employee pension money is invested in the company where the workers are employed, and 2) workers may borrow against future corporate earnings to purchase company stock. Money or stock the business contributes to fund the plan is tax deductible.
HistoryIn 1956, San Francisco lawyer and economist Louis O. Kelso created the first employee stock ownership plan (ESOP) to shift ownership of Peninsula Newspapers, Inc. from its founders to the company’s employees. The concept took off in the mid 1970s and 1980s, when Congress passed legislation encouraging the development of such plans by allowing business owners who sell to their employees to defer capital gains taxes by rolling over proceeds into U.S. domestic stock.
ESOPs play a critical role in building community wealth for several key reasons:
- They help stabilize the economic base of local communities: as ownership is typically vested in the workers who reside in the community, firm relocations are less likely.
- They provide a mechanism for local owners to “cash out” when they retire, while ensuring their businesses remain financially viable and rooted locally.
- ESOP companies are less likely than comparable firms to lay off workers in economic downturns.
- ESOPs provide an opportunity for employees to accumulate wealth through their ownership shares. In fact, ESOP employees earn more in wages and retirement income than their counterparts at traditional firms.
- ESOP companies often provide greater opportunities for workers to participate in decision-making processes, allowing for greater community control of local assets.
Community-wealth.org houses an extensive collection of resources focused on ESOPs and their role in community wealth building. Below is a glimpse of the rich array of materials you will find as you explore our site:
Our Support Organizations section features major organizations working to promote ESOPs. One such group is the National Center for Employee Ownership (NCEO), a nonprofit membership organization founded to provide objective, reliable information on employee ownership, including ESOPs.
Key Facts & Figures
14.4 million participants*
Increase in sales, employment, and sales/employee by ESOPS (2000)
2.3% to 2.4% per year above expected, absent an ESOP*
Mean ESOP account balance & yearly contribution per capita (2018)
$61,000 and $4,000/year*
$28,500 vs. $14,831*
Our Best Practices section showcases exemplary ESOP companies from across the country such as Acadia, based in Lafayette, Louisiana. Founded in 1971 as a small ambulance company, Acadia now provides emergency medical care and transportation across Louisiana, Texas, and Mississippi through more than 4,000 employees and its fleet of over 400 ambulances, helicopters, and fixed-wing aircraft. A majority-owned ESOP company since 1998, Acadia has won a range of awards recognizing it as a “top workplace” and service leader.
Our Research Resources section highlights web-based resources focused on ESOPs. For example, NCEO’s Online Library features a broad range of free, NCEO-produced articles focused on ESOPs. Issues explored include basic “how-tos” as well as more specialized topics such as open-book management.
Our Articles and Publications section includes links to a diverse selection of articles, reports, papers, and books focused on ESOPs. One such paper is Corey Rosen’s The Impact of Employee Ownership and ESOPs on Layoffs and the Costs of Unemployment to the Federal Government (2013), which demonstrates that employees at worker-owned companies are less likely to be laid off than those working at other private sector businesses and estimates that the federal government would have saved $23.3 billion in 2010 if all companies matched the worker-owned companies’ lower layoff rate.
Our Toolbox features concrete resources for those interested in establishing effective ESOPs. For example, Stephen Clifford’s An Owner’s Guide to Business Succession Planning details several alternatives for ownership succession, which include establishing an ESOP, and outlines specific steps current business owners should take to plan for their succession.
And, lastly, our Policy Guide provides an overview of federal initiatives and programs that can help practitioners leverage resources and increase their impact. For example, this section highlights the many federal tax benefits for ESOPs, which are estimated at $2 billion a year and credited with encouraging business owners to adopt the model.