Employee-owned companies experience higher profitability and growth. Workers are invested in the business and may have a vote on significant strategic decisions. But the advantages vary among broad-based worker ownership and stock options arrangements. Some structuring begins at startup, whereas others happen as part of an owner exit plan.
Indeed, you may have heard of more well-known employee-owned businesses like Publix Super Markets and Brookshire Brothers. These examples and others demonstrate what a commitment to a worker-centered structure does. Learn what worker ownership looks like and how it improves organizational and individual outcomes.
Employee-owned business definition
Employee ownership refers to an arrangement where no one person has a majority of shares or control over an organization. Models can be as simple as granting workers stock shares or highly structured with democratic governance. You can form an employee-owned company during startup, transition to it after owning your business for a while, and even vote to change your worker-owned arrangement.
According to Rutgers School of Management and Labor Relations, employee-ownership structures include one or more of the following concepts:
- Members have governance rights, giving them control over operational or strategic decisions.
- Employees own a substantial percentage of stock shares and benefit financially.
- The business mission focuses on worker benefits.
[Read more: The Most Common Business Entities for Startups]
Broad-based employee ownership and stock options models
The National Center for Employee Ownership (NCEO) said, “the most common form of employee ownership in the U.S. is the employee stock ownership plan (ESOP).” However, worker ownership is broad and includes worker cooperatives, employee ownership trusts (EOTs), and other stock options models. Indeed, more than 19% of U.S. employees “owned some share in their employer” in 2018, according to Rutgers’ analysis of the General Social Survey.
The different arrangements affect governance and member benefits while providing various tax advantages. Some, like worker co-ops, are primarily made up of small businesses, whereas enterprises with 40 or more employees more frequently choose ESOPs.
Employee ownership refers to an arrangement where no one person has a majority of shares or control over an organization.
The NCEO’s side-by-side comparison explains the various employee-owned business formats, such as:
Examples of employee-owned brands
The Aspen Institute reported that “there are more than 6,000 ESOPs in the United States with more than 14 million employees holding total assets of over $1.4 trillion.” About 10 to 15 million workers participate in an employee equity grant or stock purchase plan, and 8.5 million belong to an employee stock option arrangement. In addition, UC San Diego said there are “465 worker cooperatives with more than 5,000 employees in the U.S. and an estimated $505 million in annual revenue.”
Worker cooperatives make up the smallest segment of employee-owned organizations, with roughly “400 worker-owned cooperatives in the U.S.,” according to Community-Wealth.org. These businesses have more than $467 million in gross revenue and 6,734 employees.
The NCEO lists the largest employee-owned businesses, including those across multiple industries that are 100% worker-owned, such as:
- Supermarkets and other services: WinCo Foods, Brookshire Grocery Co., Houchens Industries, and Harp’s Food Stores.
- Architecture and engineering: HDR Inc., Burns & McDonnell, Gensler, and Schweitzer Engineering Laboratories.
- Manufacturing: W.L. Gore & Associates and Holden Industries Inc.
- Tree and environmental services: Davey Tree Expert, Wright Service Corp., and Lewis Tree Service Inc.
- Engineering and construction: Black & Veatch, Performance Contracting Inc., and Austin Industries.
- Health care services: EmpRes Healthcare Management, Acadian Ambulance, and Bridges Health.
Benefits of an employee-owned company
According to the San Diego Workforce Partnership’s review of employee ownership research, 72% of employees said they prefer worker-owned companies, and nearly 40% of surveyed consumers “are more likely to buy from a company that shares ownership with its employees.” The group found that after converting to an employee ownership model, “companies experience an increase of two percentage points in sales, employment, and productivity growth.”
Moreover, the Employee Ownership Foundations found that worker-owned firms outperformed others during the pandemic. They were more likely to provide staff with personal protective equipment and transition to remote work earlier. Consequently, companies owned by employees were “3.2 times more likely to retain staff—even when other businesses received funding through the Paycheck Protection Program and the employee-owned firms did not.”
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Published October 19, 2022