What is Employee Ownership?
At thousands of businesses in the United States, employees own a majority of their company’s stock. These “employee-owned” companies employ millions of people who each have the ability to say “I am an owner of this company.”
Types of Employee Ownership
There are many vehicles that can put a financial stake into employees hands, ranging from stock options, to purchase plans, to phantom stock. Each vehicle has its own unique mix of features, including tax treatment, accounting rules, and motivational impact. We focus on two main forms: ESOPs and Worker Cooperatives.
- Employee stock ownership plans (ESOPs) are a way to sell a business that benefits the company, employees, and the selling shareholders. Owners can sell all or just a percentage of their business to the employees.
- Through an ESOP, employees are given shares in the company (at no cost to them), which are held in a trust and distributed after the employee leaves the company. In many cases, employees have retired with ESOP accounts worth hundreds of thousands, and even millions of dollars, in addition to their 401(k) and other retirement benefits.
- ESOPs are a unique type of plan that can also be used as (1) a flexible, tax-advantaged tool for business succession, (2) a way for the owner to take some money off the table, (3) a way to create an internal market for company stock, (4) a retirement plan that holds company stock in a trust for the benefit of employees.
- Check out this simple guide to ESOP nuts and bolts
- With 6,000 ESOPs covering approximately 13 million employees in the United States, ESOPs are the most popular form of broad-based employee ownership.
- In addition to sharing ownership in a company, cooperatives are also governed by employees, usually through a one-employee-one-vote model.
- In the United States, worker cooperatives are often smaller companies, and according to estimates from the U.S. Federation of Worker Cooperatives, there are currently 300 worker cooperatives employing around 3,500 people nationwide.
- Stock options give employees the right to buy a number of shares at a price fixed at grant for a defined number of years.
- Restricted stock and restricted stock units (RSUs) give employees the right to acquire or receive shares, by gift or purchase, once certain restrictions, such as working a certain number of years or meeting a performance target, are met.
- Phantom stock pays a future cash bonus equal to the value of a certain number of shares.
- Stock appreciation rights (SARs) provide the right to the increase in the value of a designated number of shares, paid in cash or shares. Performance shares come in many forms, but often are grants of stock given to eligible employees when individual, divisional, or company performance measures are met.
- Employee stock purchase plans (ESPPs) provide employees the right to purchase company shares, usually at a discount.
What is an ESOP?
Watch this video for a quick, 2 minute explanation.
Is Employee Ownership Right for You?
Are you beginning to think about the succession plan for your business?
Are you concerned about the legacy of your business?
Do you want to see it stay here in Pennsylvania?
Could your business benefit from tax incentives?
Would you like to offer a robust retirement plan for your employees?
Are you willing to put in the necessary work to make the transition successful?
Could you benefit from some immediate cash? (from selling just a percentage of the business to employees)?
Compelling research and decades of experience show that employee ownership is a powerful tool to improve corporate performance, but only when paired with what we call an “ownership culture.”
North Highland Employee-Owners Open Up about Ownership Culture
North Highland, a worldwide consulting firm with offices in Philadelphia, is making employee ownership work with a robust ownership culture.
Pennsylvania Center for Employee Ownership