DAMARISCOTTA — A recent Bloomberg Opinion commentary, “There’s no reason that workers can’t be corporate owners” (Dec. 4), raises a provocative topic that invites a more expansive sequel. The author, Noah Smith, disappointedly cites a 2016 census of only 357 U.S. worker-controlled cooperatives employing about 7,000 people. A limited comparison of those entities with traditional corporate structures overlooks a middle-ground means of empowering employees while overcoming acknowledged financing difficulties encountered by co-ops.
Enterprises of substance need risk-equity investors to support borrowing. Use of “other people’s money” offers the prospect of sustainability and growth that should appeal to owners and workers alike, but rank-and-file employees rarely have the capital to be both.
The National Center for Employee Ownership estimates that 32 million Americans have some form of direct equity interest in their workplaces. Aside from proprietorships and publicly owned companies with stock-option programs, 6,460 private companies have formal employee stock ownership plans (42 registered in Maine) covering 10.6 million stakeholders. ESOPs, as they’re called, include all eligible employees, some affording majority control while most involve shared ownership with entrepreneurial founders and investors. Like co-ops, they encourage worker understanding of various aspects of the business and a common sense of purpose, trust and reward with its designated leaders – doing what is best for stakeholders.
The larger the organization, the more difficult it is to communicate through layers of management and across silos of departmental responsibility. Many smaller and newer companies, particularly in a more competitive, service-based economy, have established ESOPs to recognize the increased value of employee experience and loyalty that can be gained from equity participation.
The ESOP calls for a fixed percentage of the company’s shares to be allocated to employees at no cost and placed in a trust until the individual leaves or retires. Some provide for majority control, but most are designed to share ownership with entrepreneurial founders and investors. After a one-year trial period of compatibility, participants vest in their equity interest based on compensation, seniority or both. Shares of departing employees are reallocated among those remaining, increasing potential financial benefit and voting power to those who choose to have an extended career with the employer. That benefit is paid out afterward as a “nest egg” retirement supplement, its value determined by the latest required annual independent appraisal. An accompanying tax-favored mechanism enables the employees as a group to increase their percentage ownership by acquiring additional shares from departing founder-investors.
In general, U.S. companies with meaningful employee ownership participation have demonstrated the ability offer less confrontational ways to mitigate management-labor conflict and jointly address perceived inequities. (Their growth has been accompanied by a steady downtrend in organized union membership – from 17.7 percent of the domestic labor force in 1983 to just 10.5 percent of an expanded worker population last year, most notably in the private sector.) Employee-owners can have the same effect as the activist investor groups striving to effect strategic change in underperforming publicly owned corporations.
Neither the co-op nor the ESOP concept ensures success, for the downside of ownership is identical to any organizational structure in bad times or when uncontrollable circumstances demand sacrifices. Times have changed significantly, however, over the past several decades. Detractor characterizations of “evil corporations” run by faceless “suits” exploiting helpless workers without compassion – or likening co-ops to putting “evil unions” of unruly “anarchists” in charge at risk of disruption – are fading rapidly. Given good internal messaging of goals and practices, the ESOP approach can promote upbeat morale and teamwork conducive to productivity and civility.
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