when a company becomes successful the employer's financial rewards are commonly dispersed among a very few, like the CEO and top management. This scenario is bad for employee morale and can hurt our economy.

A solution could be to give workers a financial stake in their company's assets. Owning stock in their company gives an employee a better chance of building financial security. Louis Kelso, an economist who invented the ESOP (Employee Stock Ownership Plan) argued that employee owned companies are better for the economy. In his own words, "for more capitalism to survive, there needs to be more capitalists".

What is Employee Ownership?It refers to company that is owned by some or all of its employees. A formal plan is drawn up which compensates each of the employees through owning stock. The company structure does not change. Employee-owners are not given an increased role in management and decision making but research has shown that the companies who promote a culture of “thinking and acting

Headquarters of Gardeners’ Guild, a Richmond based employee-owned landscape contractor. Photo courtesy of Gardeners’ Guild.

Experts agree that owning assets is a key differentiator between the wealthy and lower income earners. The assets we are referring to are real estate, a business or a stock portfolio.

It's not enough to rely on take-home pay to grow one's net worth, especially in our current economy, where for the last

Is Employee Ownership right for your company?

ten years wages have stagnated. In fact, the average middle income family only earns 11% more than it did in 1980, while consumer prices have risen roughly 155%.*

Productive employees are the lifeblood of any business, but

like owners” are more successful.

The most popular and successful vehicle for compensating employees is called an ESOP (Employee Stock Ownership

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Plan). An ESOP is essentially a retirement plan that invests in the company and holds its assets in a trust. Employees don't directly own the stock, but upon leaving it is paid to them. ESOPs are more prevalent with private, not publicly traded companies.

Other employee ownership plans include a “stock option” plan. which permits employees to purchase company stock at a specified price during a predetermined period. An employee stock purchase plan (ESPP) is another plan similar to a stock option plan. Employees have the option to purchase stock through payroll deductions and usually at a discount.

The Employee Ownership Foundation sponsors a survey every four years that gathers new information about employee ownership in the United States. The latest survey (2010) found that approximately 30% of our private sector companies offer some kind of stock ownership.

A cooperative is another employee ownership model. These companies do not offer stock, but each employee has an equal voice in all policy decisions. This type of plan is more common for small companies.

HistoryThe concept of employees owning stock in the company they work for is long established in our country's history. It dates as far back as the 1862 Homestead Act which made land ownership more accessible to the masses. In that century, leaders of companies such as Procter & Gamble, Sears & Roebuck and Railway Express believed that when a long term employee reached old age they deserved an income.

The 1920's has been called the largest experiment in employee stock ownership anywhere in the world. 1929 was a peak in the trend when more than a million workers owned shares in their companies with a collective stake worth $1.5 billion. Business and government supported the idea as a way to diffuse the tension between capital and labor. Unfortunately 90% of employee stock plans were terminated subsequent to the great depression of 1929.

Notable Employee Owned Companies In a book published in 2013 called The Citizen's Share, authors Joseph Blasi, Douglas Kruse and Richard Freeman assert that on average, firms that give their employees an

Richmond landscape contractor, Gardeners' Guild, was founded in 1972. It grew steadily from a one-truck operation to nearly one hundred employees by the mid 1990's. Owner Linda Novy had begun to explore an exit strategy to secure the future of the company she had nurtured for the last twenty years.

After considering several options it became clear that employee ownership best complemented the unique corporate culture Novy fostered. Management quickly embraced the idea and the company began the process of transitioning to an ESOP (Employee Stock Ownership Plan)

The first step was hiring an experienced ESOP attorney to navigate Gardeners' Guild through the complexities of federal regulations. Next, a professional was brought in to perform an independent fair market appraisal of the company to determine a selling price. An administrator, who would handle the annual reporting and allocation of stock values, was also engaged.

On December 23rd1997, after six long months, a deal was inked. Gardeners' Guild employees were forty percent owners! It was phase one of a ten year plan to achieve 100% ownership. As the company prospered, additional funds would be available to progressively purchase Novy's stock. As a matter of fact, the ensuing years were sufficiently profitable allowing Gardeners' Guild to achieve its goal in half the time.

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Company Vice-President, Mike Davidson talks about how employee ownership has changed the company:

"First, I would say that it required us to raise our game with regard to financial reporting and forecasting. It made us a better company in the sense of proactive planning, investing in employee training and cash flow management."

"Being an ESOP does not happen without a considerable effort. And, at the same time, our ownership culture has helped us to weather challenges as well as enjoy successes."

"What sets us apart, and makes us so proud of being an ESOP is that the opportunity does not require our employee to invest a dime. Having a stake in our company's fortunes has a direct impact on our performance and commitment."

SNAPSHOT: Gardeners' Guild, ESOP based in Richmond

Mike Davidson, VP

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ownership stake are more productive and innovative workplaces.

In 2000 two of the above authors conducted the most important study to date on private ESOP companies. They found this model to increase sales and employment by 2.3 - 2.4% per year over what would have been expected minus ESOP.

Success stories include Florida based giant grocer, Publix. They have an employee ownership fund controlling 80% of the company. WinCo, a fast growing discount grocery chain based in Idaho is a 100% employee owned company and rapidly encroaching on Walmart's turf.

Some bay area employee owned firms include Recology, a San Francisco based resource recovery company, Sleeptrain, Skyline Construction, Jackson Hardware, San Rafael; and Gardeners' Guild, Inc. Landscape Contractor, in Richmond.

possibly two, a valuation expert and a trustee.

A business also needs to be prepared to share its financials with employees, at least annually if not more frequently. Educating employees to read their company's financials is a one step toward fostering an "ownership" mindset.

There is another important consideration for a company preparing to become an ESOP. When a departing owner considers selling its shares to the employees, they will want to ensure their company's future success by identifying and training its next generation of managers.**

Advantages of Employee Owned Companies and how they benefit the economy The NECO (National Center for Employee Ownership) recounts some of these positive results of academic studies: Employee-owners have 2.5 times greater retirement accounts, receive 5%-12% more in compensation and four times less likely to be laid off. ESOP companies are 25% more likely to stay in business.

ESOP's in particular, have significant tax benefits. Most important – employer contributions are generally tax deductible and dividends paid on ESOP held stock can be deducted.

There is ample evidence touting the benefits of employee owned companies. A business enjoys tax breaks; their employees increased financial security. Workers' increased buying power and the company's success improve the economy. But, what seems to be the most powerful driver for overall success is what happens when these companies successfully adopt an ownership culture. When an employee is empowered to "feel" like an owner, there is a marked progression in loyalty, job satisfaction and commitment.

SOURCES:National Center for Employee Ownership (NCEO) The ESOP Association Employee Ownership Foundation: www.employeeownershipfoundation.org/historyTime Magazine Ownership California: www.ownershipcalifornia.org/culture* CNN Money** NY Times

Is an ESOP for you?It takes sufficient capital and commitment to a rigorous process to set up an ESOP, the most popular model for an employee owned company. The investment can cost upwards of $250,000 to establish. Some additional costs include extra tax returns and annual valuations.

The company will also need to hire professionals to assist them in setting up the ESOP. They include have a lawyer,

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