What if workers owned the workplace?

“We’re one big family” is something you may have heard at your workplace, or heard a friend recall, complete with an eye roll, their boss saying at an all-hands meeting. This sentiment isn’t restricted to the corporate world, but has pervaded all reaches of working life, including the service and hospitality industries. But what’s wrong with family? Inherently, nothing. It’s the way a family operates that matters, not that it exists. There are relatively happy, though imperfect, ones, where each member is generally okay. There are amazing ones that, even if they had a rocky start, have worked through their issues and are stronger than ever. And there are dysfunctional ones, full of scapegoats, golden children, and caretakers who are in denial. Ones where the majority of resources—care, love, and attention—go to just a few, select people, while everyone else goes to bed hungry.

What’s the state of the American work family? To answer this, it’s essential to look not so much at profit and productivity, but at the wellbeing of individual workers.

Pre-pandemic, as of 2018, the income gap between Black and white Americans was $33,000—up from $23,800 in 1970. And according to the Pew Research Center, the wealth gap between the richest and poorest families has more than doubled between 1989 and 2016. Plus, the middle class is shrinking: in 1971, 61% of Americans lived in middle-income households. In 2019, it was 51%. 

The COVID-19 pandemic has only exacerbated this reality, not just in the U.S, but globally.  Since 2020, according to the World Inequality Lab, the net worth of billionaires worldwide grew by $3.6 trillion dollars. And at the same time, 100 million people fell into extreme poverty, according to the World Bank. 

These numbers are not just digital pixels on a screen, but spell out the difference between wanting for nothing, and scraping for everything. Between quality healthcare and going without. Between healthy, organic food at your fingertips and food deserts. Between higher education and not even being able to consider the possibility of a degree. 

And even before 2020, wages have struggled to keep up with inflation. The Economic Policy Institute puts it best, “Slow wage growth and rising inequality is the norm. Over the last 40 years, wages for the vast majority of the U.S. workforce have grown slower than their potential and much slower than for those at the top.” 

That’s a lot of information. Where’s the hope? Hope can be found in a lot of places, thankfully. And it’s important to remember that no one idea or potential solution is a silver bullet, the be-all-end-all of solving inequality. 

Even so, we’re living in a time where nearly every aspect of society is being reexamined, including how our basic economic systems work and what it means to be a worker. 

People are already implementing new models for the workplace, models that give workers, from all socioeconomic levels and backgrounds, more agency and opportunities to build wealth. That allow for both increased job satisfaction and boosted productivity across the board. One of those models is employee ownership.

Employee ownership is an umbrella term for types of businesses where individual workers own shares in the company’s stock, making them owners of the company. In traditional corporations, some employees, usually members of middle or upper management, are sometimes offered stock options. But for employee ownership, workers at all levels become owners. This structure creates a more democratic mode of management, with workers having a larger say in decisions that affect their lives. They have better on-the-job satisfaction and are able to build more personal assets, which helps them generate more wealth—wealth that they can use and pass onto their children.

“If you treat employees like owners, rather than just recipients of a few shares of stock, then they’ll behave a little more like owners,” says Professor Douglas Kruse, the Associate Director of the Institute for the Study of Employee Ownership and Profit Sharing at Rutgers University. 

There are a few different types of employee ownership models, including Employee Ownership Trusts, Worker Cooperatives, and ESOPs. Today, let’s start with ESOPs.

In a workplace with an Employee Stock Ownership Plan (ESOP), a company sets up a trust and fills it with its own stocks (or, with money for employees to buy stock). Employees then accrue shares in that trust overtime. If an employee leaves the company or retires, their shares are bought back and that worker receives a payment. This way, through the payment, the worker receives part of the profit of the company— profit that they themselves helped generate. 

ESOPs can be described as a hybrid between a retirement account and profit-sharing model,  with the added benefit that the employees themselves are part owners and thus, have greater say in on-the-job conditions and decisions. 

This model helps bridge the wealth gap in a number of ways. First, a worker’s ESOP account helps them build more personal assets while they’re working, aside from their wages or salary.  As we know, increased personal assets help provide financial security and in this case, help people better save money to invest in themselves, their families, and to save for retirement.  

According to a three-year study from Rutgers University, 43.5% of all families, and 60.6% of families of color, are what’s considered asset-poor. Besides basic survival needs, they don’t have adequate funds to weather the storms of life—or to invest in a better future for themselves or for their families. 

ESOP accounts, then, become an automatic way for workers to save on the job, which, as the study points out, “requires no deduction in family budgets to be started or to grow”, in contrast to  401(k)s and Roth IRA accounts. Another advantage is that ESOP accounts are not taxed while the worker is still earning.

Let’s compare median amount of assets of workers, broken down by income category, for those who participate in ESOPs v. those who do not: 

For workers earning between $37,000 and $45,000 a year, the study showed that the median ESOP account value is $165,000, whereas for workers who do not participate in ESOPS (or who are not at employee-owned firms), their 401(k) value is $50,000.

For workers earning between $45,000 and $53,000, the median ESOP account value is $269,500, whereas for those who do not participate in ESOPs, the 401(k) value is at $50,000. 

And for workers earning between $53,000 and $61,372, the median ESOP account value is $213,000, for those who do not participate in ESOPs, the corresponding 401(k) value is $80,000. 

There are similar results for people of color, as well. For Black workers, the median ESOP account value is $34,500, whereas for those who do not participate in ESOPs, the 401(k) value is $24,000.

Workers who participate in ESOPS were better able to pass along wealth to their children. A 64-year-old Black woman named Janna helps illustrate this, “I pulled money out [of the ESOP] over recent periods of time. Bought family land… that will be of assistance to [my family] when I retire. I used … my ESOP helping family and as investments…” 

Employee-owned firms are not ubiquitous in the U.S., but they are growing. And there are a lot of opportunities on the horizon. Right now, a lot of baby-boomer-aged business owners across the nation are getting ready to go into retirement. A business owner could choose to sell their company to an outside third party, to a private equity group, or wherever else. But with all these boomers retiring all at once, the “silver tsunami”, as it’s called, there’s a great opportunity for small business owners to choose to leave their businesses to their employees and thus, convert them to employee-owned firms. “If you sell to an outside person, it’s always possible that that outside person could decide after a year or two, ’I’m just gonna shut this company down and put the assets elsewhere’. Whereas if they  sell to the employees, that’s going to really help community stability,” says Professor Kruse. 

But with all the opportunities, there are some challenges in expanding this model. Namely: our hyper-individualistic society that centers work around competition instead of around cooperation and mutual benefit. “I think that a lot of people point to the United States as this country built on individualism….I think we’ve lost the ‘us’ and  it’s become this country of ‘them’ and the ‘other,’” says Professor Janet Boguslaw of Brandeis University, where she specializes in economic and social policy, particularly for low-wealth populations. “And so it’s hard when you don’t see your destiny as tied to the destiny of your neighbor or your wellbeing as tied to the well-being of others in your community…..”

This mindset has created a siloed, stratified economy in which upward economic growth and stability feel more like pipe-dreams of a 1950s postcard. And outdated views of who is seen as an owner and who can only ever be a worker add to this dissonance. Professor Blasi of Rutgers University elaborates, “One cultural barrier is [the attitude] that the working class and the poor somehow deserve not to have ownership… and I think that that’s just garbage.” It’s a cultural attitude that does not believe that the working class has the skill, business savvy, willingness, or overall intellectual wherewithal to become owners of their workplace.

Another challenge to expanding employee-ownership is awareness, or, the lack of it.  “I actually think a lot of the problem is simply an information issue…I still think it hasn’t penetrated the consciousness of most business owners in a way that it should when they think of passing on their business,” says Professor Kruse.

So what could help? To start, state and local governments could provide workers and business owners with educational resources for navigating the process. “We need legislation that would make technical assistance available to retiring business owners to figure out if their company could be sold to employees and make small technical assistance grants available,” Professor Blasi says. 

Going further, statehouses could pass legislation for creating employee-ownership centers, hubs that further provide real-time assistance for getting started and sustaining such businesses. There are already a few of these centers across the country, like in New York, Ohio, New Jersey, and more. Also, state governments could help employee-owned businesses secure guaranteed loans needed to help buy the company. 

Back in 2018, Congress passed the Main Street Employee Ownership Act, a bill that gives the federal Small Business Association the ability “to guarantee loans for qualified employee trusts of a small business to purchase the stock of that business.” The Trump  administration did not show much interest in promoting this or furthering this cause. But now under the Biden administration, there could be some renewed hope. In fact, President Biden appointed Jared Bernstein, a longtime proponent of employee-ownership, to his Council of Economic Advisors. 

Employee-ownership isn’t a cure-all for America’s deep economic inequality or lack of social safety net. But, it does offer some solutions for how workers, of all backgrounds, can thrive.

Watch for more articles on this, as we break down Worker Cooperatives and Employee Ownership Trust, and profile real-world examples of all three models (including ESOPs).

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AUTHOR’S NOTE:

I first learned about employee-ownership a while ago from someone who I’m very close to who is extremely passionate and incredibly knowledgable on the subject. It has always piqued my interest and more and more, I’ve become interested and passionate about concrete ways we can create a more equitable economy (though I’m not, yet, on his level).

I want to thank Professor Blasi, Professor Kruse, and Professor Boguslaw for speaking with me. Our conversations were wonderful, and I look forward to connecting again soon!

Like I said, this is just the beginning. I plan on breaking down the other models, as well as profiling real-world examples of employee-owned businesses and people who work there. More to come!

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Thanks for reading! Feel free to leave a comment and share this with a friend if you think it’s worthwhile!

— Cynthia Betubiza. March 17, 2022.