EO Community

There’s More Than One Way To Be Employee-Owned

March 1, 2024

Roughly 6,400 companies in America are employee-owned. They range from five employees to over 250,000, are headquartered in all 50 states, and operate at scale in every industry. One reason employee ownership has been so successful is flexibility. No matter the company size, sector, or lifecycle stage, there is an employee ownership structure that will work. At Certified Employee-Owned, we champion all types of employee ownership. Our simple and clear definition of “employee-owned” sets a standard that can easily be applied to any business. As interest in employee ownership grows, we thought it would be helpful to outline the major ownership structures including: Employee Stock Ownership Plans (ESOPs) Worker Cooperatives Direct Share Ownership Employee Ownership Trusts (EOTs) Equity Compensation Plans Employee Stock Ownership Plans (ESOPs) Most employee-owned companies in the US have an Employee Stock Ownership Plan, commonly referred to as an ESOP. An ESOP is a retirement benefit plan that’s open to all employees and invests primarily in the employer’s stock. ESOPs operate like 401(k)s, holding stock in s special trust that an employee-owner can access when they retire. Technically any business can have an ESOP but, due to the cost and administrative overheard, a company usually needs at least 30 employees for the plan to work. ESOPs can own any portion of a business and we’ve seen this percentage vary from 1% to 100%. Many large public companies have ESOPs that own a tiny fraction of outstanding shares, which is why it’s important to keep in mind that not all ESOPs are employee-owned. ESOPs are popular because they have many benefits. They have substantial tax advantages. For example, a 100% ESOP-owned S-corporation is exempt from federal income tax. By law ESOPs are broad-based, which makes them inclusive. Employees do not need to make a financial contribution to receive their shares, participation is automatic, and all employees who work at least half-time and meet a certain age threshold are eligible for ownership. Companies usually adopt an ESOP as a means of providing liquidity to selling owners. Based on an informal survey of our Members, we estimate that over 95% of ESOPs are created through conversion. As of the date of this article there are 5,734 employee-owned companies with an ESOP. Notable examples include Wawa, WinCo Foods, and Davey Tree. Worker Cooperatives Worker cooperatives are democratically owned and governed by their employee-owners. Worker participation in governance is the hallmark of a worker cooperative and usually includes employees voting on the board of directors on a one-person, one-vote basis. Worker cooperatives have a long history in the United States. There have been several waves of growth, including a large wave spanning the the 1970s and 1980s. Worker Cooperatives are currently in the midst of another wave spurred on by several development organizations including the US Federation of Worker Cooperatives (USFWC) and the Democracy at Work Institute (DAWI). Unlike ESOPs, a substantial number of Worker Cooperatives are employee-owned from the very beginning. A 2021 survey run by DAWI found that 88% of worker cooperatives are the result of startups, and just 12% are the result of business transitions. Additionally, worker cooperatives are almost all 100% owned by employees, though occasionally a company transitioning to a cooperative might have a period of joint ownership with the departing owner. Typically, worker cooperatives have eligibility requirements for becoming a worker-owner. This generally comes in the form of a waiting period of one to several years and a buy-in that ranges from a few hundred dollars up to a thousand. Not all coops have a buy-in, and those that do often offer worker-owners with favorable financing to encourage participation. As of the date of this article, there are 400 worker cooperatives. Notable examples include Cooperative Home Care Associates, Evergreen Cooperatives, and A Slice of New York. Employee Ownership Trusts (EOTs) Employee Ownership Trusts (EOTs), sometimes referred to as Employee Ownership Purpose Trusts, are quickly gaining traction as an innovative employee ownership structure. Modeled off an approach pioneered in the UK by companies like John Lewis Partnership, EOTs have been growing in the US since 2016 thanks to the work of groups like EOT Law, Common Trust, and Purpose Owned. EOTs are extremely flexible which allows selling owners to craft an employee ownership structure that closely aligns with their vision for the future. They are generally much less expensive than alternatives, especially ESOPs. And they can be set up to exist in perpetuity, which gives selling owners to confidence that their legacy of employee ownership will continue as long as their company continue to operate. EOTs are still in the early stages in the US and unfortunately don’t yet benefit from tax incentives. Despite that headwind, today there are roughly two dozen EOTs in the US and that number grows every year. Prominent examples of EOTs include Arbor Assays, Bicycle Technologies International, Text-Em-All. Direct Share Ownership Direct share ownership is another flexible option for employee ownership. While larger companies are likely to choose an ESOP for tax reasons, smaller companies sometimes find distributing shares directly to employees as a better method for implementing employee ownership. Direct share ownership has become increasingly popular thanks to Teamshares. Founded in 2019, Teamshares buys smaller companies and then sells the business back to employees over a 10- to 20-year time period. At this point we’re aware of 50 companies that use direct share ownership to achieve at least 30% employee ownership, and that number is growing rapidly. Equity compensation Equity compensation incorporates stock-based employee benefits including stock options, restricted stock, RSUs, stock appreciation rights, and phantom stock. Equity compensation is typically given to the employee at no cost. Equity compensation plans are popular ways to compensate executives and offer equity to employees at early stage startups because they are flexible and generally offer employees favorable tax treatment compared to giving them shares directly. Not many companies are using equity compensation to achieve 30% employee ownership, but there are a few and these structures offer a compelling option for newer companies that are growing and want a cheap, flexible way to bring early employees along as owners. All of the structures in this article have unique strengths and weaknesses. But they work towards the same goal: changing the relationship between company and employee by giving everyone a chance to earn an ownership stake. No matter the size, sector, or lifecycle stage, there is an employee ownership structure that can help any company build a team of owners.

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Six Years, Six Hundred Members

September 13, 2023

It feels like just yesterday that Kramer and I sat down to talk about the idea that would grow into Certified Employee-Owned. As we celebrate our six-year anniversary, we're filled with gratitude and amazement at how far we've come. From humble beginnings with twenty eight Founding Members, to a thriving community of six hundred, the evolution of Certified EO has been a testament to the power of employee ownership and the unwavering commitment of our Members. Inception and Growth We launched Certified EO in 2017 with a simple vision: use certification to define, organize, and amplify employee ownership. We believed wholeheartedly in the potential of employee-owned companies to transform not just businesses, but entire economies. Inspired by the success of programs like Great Place to Work and B Corporation, we saw certification as a proven model to build support for and grow employee ownership. Fast forward to today, and the numbers astound us. From that humble group of twenty-eight, we've grown to a remarkable six hundred Members. They aren't just numbers on a page; they represent the individuals, the teams, and the families who have chosen a different path for their businesses. Our Membership is a tapestry woven with stories of dedication, hard work, and the desire to create lasting legacies. Sharing Ownership Stories Our journey over the past six years has been about more than just accumulating Members; it's been about sharing helping companies share their ownership story. Employee ownership isn't just a business model, it's a belief that when employees are empowered and have a stake in the success of their company, magic happens. We’re proud to work directly with our Members to provide them the tools and playbook they need to build a culture of ownership. The larger our network grows, the more we are able to amplify the voice of our Members. Certification makes employee ownership easy to understand, and getting certified makes it easy to join forces with 600+ companies building a brand together with our Certification Mark. As our network has grown and national brands like Litehouse and WinCo Foods have backed our brand, we have created a powerful tool that our Members can use to stand out as a great employee-owned company. There’s a similar dynamic with our Directory of Employee-Owned Companies. The Directory is the only place to find an up-to-date list of every employee-owned company in America and it has become a go-to resource for people looking to get involved in the space. We’ve heard of people using our Directory to simply explore employee ownership, to network with other other employee-owned companies, and even to explore potential suppliers. The transparency and accuracy of our Certification data that powers the Directory has led to a partnership with the Healthcare Anchor Network to help over 1,000 hospitals identify procurement opportunities with employee-owned companies! Recently we took another step to amplify the voice of our Members by launching Employee-Owned Jobs, the only job board focused on open positions at employee-owned companies. With over 8,500 active listings, we’re making it easy for our Members to hire great employee-owners. We’re currently connecting with community colleges, trade schools, and workforce development centers to educate job seekers about the benefits of becoming an employee-owner. Looking Forward: Uniting Purpose and Potential If the past six years have taught us anything, it's that the potential growth and impact of employee ownership is boundless. Going forward we're committed to deepening our impact. We will continue to provide resources, guidance, and a platform for knowledge-sharing among our Members. We will grow our reach and our ability to promote employee ownership. Our commitment to amplifying the voice of the employee ownership movement will remain unwavering. We believe in a future where employee-owned companies aren't the exception, but the norm, and we’re excited to build that future in partnership with our Members.

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How Certification Protects and Grows Employee Ownership

March 31, 2023

Employee ownership is an exciting idea that has the potential to address some of our country’s biggest challenges. By changing the relationship between company and employee, employee ownership helps workers build wealth, creates a better day-to-day environment for employees, and makes companies more successful. But the employee ownership community also faces challenges that impeded our growth. Employee ownership can be confusing and hard for people to understand. Worse, the goodwill that we have created is threatened by pretenders because any company can call themselves employee-owned. By setting a standard that people know and trust, Certified EO plays a unique role in helping our community overcome these issues. By making employee ownership easy to understand, building trust, and protecting our goodwill, certification benefits everyone in the employee ownership (EO) community including companies, trade organizations, lobbying groups, research hubs, state centers, service providers, and most importantly employee-owners. Certification Makes Employee Ownership Easy to Understand The details of employee ownership can be confusing to insiders, let alone someone with no prior knowledge. There are many different structures - ESOPs, Worker Cooperatives, Employee Ownership Trusts, and Direct Share Ownership - each with their own nuances. For example, ESOPs have allocations, contributions, vesting, valuation, distributions, and forfeitures. From a technical point of view the details are critical, but for most people they are overwhelming. Certification makes employee ownership easy to understand. Our standard of significant, broad-based employee ownership is a yardstick that applies across all structures and boils employee ownership down to the basics: Ownership: at least 30% of the company must be owned by employees (excluding founders). Access: reasonable access to ownership must be open to every employee. Concentration: employee ownership must not be too concentrated. These simple concepts help people understand if they’re aligned with our community in terms of basic principles. It also helps companies communicate this alignment with an easy-to-recognize mark. And it resonates! Last year we ran a nationally-representative opinion poll and found that 25% of Americans would be more likely to apply to a job if the description had our certification mark. Certification Builds Trust People understand third-party certification. There are many examples of successful certifications across the United States: Great Place to Work, Made in America, USDA Organic, Fair Trade, and Veteran- and Women-Owned Businesses. Certifications are a familiar concept that help people understand whether a company’s claims are potentially misleading or indeed truthful. The independent validation of third-party certification builds confidence, especially with people who are unfamiliar with employee ownership. It can help job seekers, new hires, existing employee-owners, clients, customers, purchasing agents, and government officials trust that EO is truly as good as it sounds. For example, when a manager is explaining the wealth-building potential to a skeptical new hire, it helps to say, “you don’t have to take my word for it, we’re certified.” The rigor of our process amplifies the trust-building. Just 1 in 200 American companies qualify for Certified Employee-Owned. We have worked with academics to verify that 30% employee ownership would transform the lives of tens of millions of Americans. And we conduct a comprehensive review of every new Member. All these efforts pay off in trust and confidence. Certification Protects Our Goodwill As employee ownership becomes more well-known, our community will face a major issue: anyone can call themselves employee-owned. Maybe the CEO is the sole owner and they claim that they are also an employee, so technically their company is 100% employee-owned. Or maybe a company that has distributed 1% of shares across all employees starts talking about their employee ownership. Afterall, every employee is also an owner. You might be think these claims are absurd, but unfortunately we’ve already come across companies making such misleading statements. These examples show there is a lot of gray area around what it means to be employee-owned. This creates the possibility for the employee ownership equivalent of “greenwashing” and it will become more common as awareness of this amazing idea continues to grow. Impersonators damage the concept of employee ownership and, if left unchecked, will create negative opinions and impressions that do irreversible damage. As a community, we must defend our goodwill before it is diluted to the point of being meaningless. Aligning around a common standard with a clear and rigorous process and building a common brand will help fend off pretenders. Goodwill is an amazing asset, but it is fragile and we must protect it with certification.

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The Top 25 Cities for Employee Ownership 2022

October 5, 2022

Employee ownership changes the relationship between business and community. When every employee has an ownership stake, companies become rooted in place. The wealth they build flows through the local economy, the jobs they create are more stable, and they become more involved in service. Employee ownership is a win for workers, businesses and communities. That’s why we are proud to announce a new list highlighting the Top 25 Cities for Employee Ownership. The Top 25 Cities for Employee Ownership showcases the cities in America that have done the most to foster a positive environment for employee ownership. Collectively they are home to 569 employee-owned companies. From small towns to large metros, these cities range in size from 17,000 people to over 850,000. From the coasts to the heartland, they represent 15 states with a range of cultures and political orientations. The diversity of cities in the Top 25 highlights the broad appeal of employee ownership. Our list is the result of a comprehensive effort to identify every employee-owned business in America, including Employee Stock Ownership Plans (ESOPs), Worker Cooperatives, Employee Ownership Trusts (EOTs), and broad-based equity compensation plans such as stock options. By combining our unique certification data with government fillings, news articles, website visits, and direct phone conversations we have curated the only up-to-date list of every employee-owned company in America. Our ranking of the Top 25 takes into account both the number and the concentration of employee-owned companies in each city. We restrict ourselves to all cities with at least five employee-owned companies and look at the total number and the per capita density. Our methodology creates a balanced list that puts every city on an even playing field. If you’re curious to see how many employee-owned companies are in your town, search your city name in our Directory of Employee-Owned Companies. #1 - FARGO, NORTH DAKOTA Fargo, North Dakota is the #1 city for employee ownership in 2022! The state’s most populous city, Fargo is home to 26 employee-owned companies, including Dakota Supply Group, Border States Electric Supply, Fargo Glass & Paint Company, and Scheels. Fargo is the only city in America in the top 25 for both the total number and per capita density of employee-owned companies. With a population of roughly 125,000, Fargo has one employee-owned company for every 4,800 residents. Top industries for employee ownership in Fargo include distribution, manufacturing, and engineering. #2 - BERKELEY, CALIFORNIA Berkeley, California is ranked #2 for employee ownership in 2022! Known for all things counter-culture, Berkeley is home to 22 employee-owned companies, including Mal Warwick Donordigital, Arizmendi Bakery, Sun Light & Power, and Alchemy Collective Cafe. Berkeley is the only city other than Fargo to be in the top 30 for both the total and per capita density of employee-owned companies. Berkeley also stands out as the #3 city for Worker Cooperatives with 18. Berkeley is partnering with Project Equity and the Sustainable Economies Law Center to help local businesses stay locally-owned and preserve their legacy by becoming employee-owned. #3 HARRISBURG, PENNSYLVANIA Harrisburg, Pennsylvania is the 3rd best city for employee ownership in 2022! The capital of Pennsylvania, Harrisburg is home to 17 employee-owned companies, including HB Global, D&H Distributing, and Schaedler Yesco Distribution. With a population of 58,000, Harrisburg has one employee-owned company for every 3,400 residents, making it the #9 city for per capita employee ownership. #4 - CINCINNATI, OHIO Cincinnati, Ohio is the #4 city for employee ownership in 2022! Sitting on the Ohio River, Cincinnati is home to 32 employee-owned companies, including Al. Neyer, Intrust IT, Ohio Valley Electrical Services, Parallel Technologies and The Motz Corporation. Top industries for employee ownership in Cincinnati include IT consulting, manufacturing, electrical contractors, and wholesalers. #5 - MINNEAPOLIS, MINNESOTA Minneapolis rounds out the Top 5 as the #5 overall city for employee ownership! With 40 employee-owned companies, Minneapolis is also the #5 city in terms of total number of EO businesses. H2I Group, Kurt Manufacturing Company, Brin Glass Company and RSP Architects all call Minneapolis home. The city has taken an active approach to fostering employee ownership. In 2016, it expanded its Business Technical Assistance Program (B-TAP) to include services aimed at supporting the development of new Minneapolis co-operatives by offering feasibility training and technical assistance for businesses interested in converting into a cooperative. #6 - MADISON, WISCONSIN Madison, Wisconsin is the #6 city for employee ownership. The state capital of Wisconsin, Madison is home to 27 employee-owned companies, including Vita Plus, Bock Water Heaters and Just Coffee Cooperative. This midwestern university town stands out because of the Madison Cooperative Development Coalition (MCDC), a City of Madison-funded initiative to form worker cooperatives through co-op education, technical assistance, outreach to potential or existing business owners, and $10,000 seed grants to cooperative startups. #7 - LYNCHBURG, VIRGINIA Lynchburg, Virginia is ranked #7 for employee ownership in 2022. Lynchburg is home to 15 employee-owned companies, including Electronic Design & Manufacturing, Scott Insurance, and Wiley & Wilson. Lynchburg is one of just nine cities in the Top 50 for both the total number and per capita number of employee-owned companies. Top industries for employee ownership in Lynchburg include insurance, engineering, and HVAC services. #8 - SPRINGFIELD, MISSOURI Springfield, Missouri is the 8th best city for employee ownership in 2022. One of just three cities in the top 40 for both total and per capita employee-owned companies, Springfield is home to 21, including SRC Holdings, Ollis/Akers/Arney, Penmac Staffing, Global Recovery Group, NewStream Enterprises, DeWitt & Associates, and South Barnes Development Company. SRC is one of the most well-known employee-owned companies in America because its unique approach to open book management led to the creation of The Great Game of Business, which thousands of companies now use to increase engagement and business performance. A number of Springfield companies are also behind the recently launched Missouri Center for Employee Ownership. #9 - ST. LOUIS, MISSOURI St. Louis, Missouri is the #9 city for employee ownership in 2022. The gateway to the west, St. Louis is home to 28 employee-owned cities, including Balke Brown Transwestern, Roeslein & Associates, USA Mortgage, and Graybar Electric. Top industries for employee ownership include real estate, construction, and engineering. #10 - OAKLAND, CALIFORNIA Oakland, California rounds out the top ten as the #10 ranked city for employee ownership. Known as “The Town,” Oakland is home to 35 employee owned businesses, the 8th most of any city. Companies in Oakland include MN Builders, Menke & Associates, Paramount Export Company, Berrett-Koehler Publishers, Coracao Chocolate, and New Harbinger. Oakland is also home to a number of non-profit organizations that promote employee ownership, including the National Center for Employee Ownership and The Democracy at Work Institute. #11 - HONOLULU, HAWAII Honolulu, Hawaii is the #11 city for employee ownership in 2022. The state capital and largest city in Hawaii, Honolulu is home to 30 employee-owned companies, including Generator & Power Systems LLC, Island Pacific Distributors, Roberts Hawaii, and The Solaray Corporation. Top industries include engineering, wholesale, and HVAC services. #12 - GRAND RAPIDS, MICHIGAN Grand Rapids, Michigan is ranked #12 for employee ownership in 2022. Located just east of Lake Michigan, Grand Rapids is home to 21 employee-owned companies, including Custom Profile, Progressive AE, Axios, and Lumbermen’s. Grand Rapids is one of just nine cities in the Top 50 for both total number and per capita number of employee-owned companies. Top industries for employee ownership in Grand Rapids are engineering, construction materials, and manufacturing. #13 - HUNTSVILLE, ALABAMA Huntsville, Alabama is the #13 city for employee ownership in 2022. The most populous city in Alabama, Huntsville is home to 20 employee-owned companies, including Ignite, OASYS, Inc, Pinnacle Solutions, Radiance Technologies, and Torch Technologies. Top industries for employee ownership in Huntsville are engineering, defense contracting, aerospace, and IT consulting. #14 - FAIRFAX, VIRGINIA Fairfax, Virginia is the 14th best city for employee ownership in 2022. Just outside of the nation’s capital, Fairfax is home to 10 employee-owned companies, including Miklos Systems, Fairfax Lumber & Hardware, and Zimmerman Associates. With a population of 23,429, Fairfax has one employee-owned company for every 2,343 residents, making it the #5 city for per capita employee ownership. Fairfax is also the 2nd smallest city on the Top 25. Major industries for employee ownership in Fairfax are consulting and engineering. #15 - SAN FRANCISCO, CALIFORNIA San Francisco, California is the #15 city for employee ownership in 2022. “The City by the Bay” is home to 50 employee-owned companies, making it #3 in terms of total number. Inheritance Funding Company, Matarozzi Pelsinger Builders, Gensler, Rainbow Grocery Cooperative, Recology, and Swinerton all call San Francisco home. With a population of 866,606, San Francisco is the largest city on the Top 25. The City and County of San Francisco and the San Francisco Small Business Development Center are partnering with Project Equity to educate locally owned businesses on the advantages of converting to employee ownership. San Francisco was also part of the Democracy at Work Institute’s 2019-2020 Shared Equity in Economic Development (SEED) Fellowship, an initiative focused on creating worker cooperatives. #16 - PORTLAND, MAINE Portland, Maine is ranked #16 for employee ownership in 2022. Known for lighthouses and seafood, Portland is home to 11 employee-owned companies, including Systems Engineering, Artist & Craftsman Supply, Stroudwater Associates, and Wright-Ryan Construction. With a population of 66,803, Portland has one employee-owned company for every 6,073 residents, making it the #21 city for employee ownership per capita. Top industries for employee ownership in Portland are professional services and construction. #17 - ATLANTA, GEORGIA Atlanta, Georgia is the #17 city for employee ownership in 2022. The capital of Georgia, Atlanta is home to 30 employee-owned companies, including Benning Construction Company, Ogden Forklifts, Choate, EPI Breads, and Techwood Consulting. Atlanta is the #30 city for the total number of employee-owned companies, and several initiatives are underway to spread the model in Atlanta. The Atlanta Wealth Building Initiative (AWBI) and Project Equity have partnered to create a business retention strategy focused on employee ownership. Atlanta was also part of the Democracy at Work Institute’s 2018-2019 Shared Equity in Economic Development (SEED) Fellowship, an initiative focused on creating worker cooperatives. 3rd largest city #18 - ROANOKE, VIRGINIA Roanoke, Virginia is the 18th best city for employee ownership in 2022. Nestled in the Blue Ridge Mountains, Roanoke is home to 12 employee-owned companies, including R&K Solutions, Lanford Brothers Company and The Branch Group. Top industries for employee ownership in Roanoke include professional services, engineering, and construction. #19 - LOUISVILLE, KENTUCKY Louisville, Kentucky is the #19 city for employee ownership in 2022. Kentcuky’s largest city and the host of one of the most famous horse races in the world, Louisville is home to 34 employee-owned companies, including Advanced Lifeline Services, Hall Contracting of Kentucky, Master’s Supply and S&D Group. With a population of 615,924, Louisville is the second-largest city among the Top 25. Louisville was also part of the Democracy at Work Institute’s 2019-2020 Shared Equity in Economic Development (SEED) Fellowship alongside San Francisco and Atlanta. #20 - SANTA FE SPRINGS, CALIFORNIA Santa Fe Springs, California rounds out the Top 20 as the #20 city for employee ownership in 2022. Located in Los Angeles County, Santa Fe Springs is home to eight employee-owned companies, including Great Western Sales, LeFiell Manufacturing Company, and MATT Construction. With a population of 17,349, Santa Fe Springs is the smallest city in the Top 25. Santa Fe Springs has one employee-owned company for every 2,169 residents, making it the #4 city for employee ownership per capita. #21 - WALNUT CREEK, CALIFORNIA Walnut Creek, California is ranked #21 for employee ownership in 2022. The fifth city from California to make the list, Walnut Creek is home to 10 employee owned companies, including Brown and Caldwell, AEI Consultants, Diablo Magazine, HPGI Holdings, and Heffernan Insurance Brokers. Walnut Creek has a long history of employee ownership. Brown and Caldwell is one of the older ESOPs in the country as they established their program in 1962 — that’s 60 years of being employee-owned! #22 - PITTSBURGH, PENNSYLVANIA Pittsburgh, Pennsylvania is the #22 city for employee ownership in 2022. Known as the “Steel City,” Pittsburgh is home to 20 employee-owned companies, including Standard Air & Lite Corporation, Aerotech, Garrison Hughes, and Ryan Construction. In 2019, The Pittsburgh City Council voiced strong support for employee ownership. This was followed by the creation of a Citywide Task Force taking a comprehensive approach to contacting business owners about converting to employee ownership. The Task Force represents a broad group that includes the Office of Mayor William Peduto, the Office of the Lt. Governor, the PA State House, the Pittsburgh City Council, the Pennsylvania Center for Employee Ownership, the Democracy at Work Institute, Chatham University, and many Pittsburgh-based businesses. #23 - PORTLAND, OREGON Portland, OR is the 23rd best city for employee ownership in 2022. Known as the “City of Roses,” Portland is home to 32 employee-owned companies, good enough for #13 in terms of total number of EO businesses. Breakside Brewery, DKS Associates, Durham & Bates Insurance, and Hunter-Davisson all call Portland home. Top industries for employee ownership in Portland include architecture, engineering, and construction. #24 - YORK, PENNSYLVANIA York, Pennsylvania is ranked #24 for employee ownership in 2022. York is home to eight employee-owned companies. With a population of 43,907, York is the third-smallest city on our list. York has one employee-owned company for every 5,488 residents, making it the #18 city for employee ownership per capita. Top industries for employee ownership in York are engineering, HVAC, and manufacturing. #25 - ASHEVILLE, NORTH CAROLINA Asheville, North Carolina rounds out the list as the 25th best city for employee ownership in 2022. Asheville is home to 10 employee-owned companies, including John W. Abbott Construction, MB Haynes, and Moog Music. Top industries for employee ownership in Asheville include manufacturing, construction, and printing. OTHER NOTABLE CITIES Two cities outside of the Top 25 are worth mentioning. The city with the most employee-owned companies is none other than New York. However, as the most populous city in the country with 8,804,190 inhabitants, New York has just one employee-owned company for every 82,282 inhabitants, making it the #181 city per capita (fourth from the bottom of the list). The city with the highest density of employee-owned companies is Zeeland, Michigan. Zeeland has six employee-owned companies and 5,522 residents, giving it one business for every 920 people. But it is just #150 in terms of total businesses. While both are remarkable, New York and Zeeland showcase why we chose an approach that considers both absolute and per capita number of employee-owned companies. We are proud to showcase the cities in America that have done the most to foster a positive environment for employee ownership. These cities are setting the standard for how to encourage employee ownership. At Certified Employee-Owned, we will continue to update our Directory of Employee-Owned Companies and create visibility for successful approaches to building an employee-owned economy. Note: All data on number of employee-owned companies comes from the Certified Employee-Owned Directory as of 6/16/2022. All data on city populations comes from the U.S. Census Bureau for the year 2020.

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Defining “Employee-Owned”: How We Set Our Certification Standards

March 21, 2022

At Certified Employee-Owned, our mission is to accelerate the creation of an employee-owned economy by building support for employee ownership. Inspired by Fair Trade and Great Place to Work, Kramer Sharp and I started Certified EO in 2016 because we thought certification would coordinate and amplify the voice of the employee ownership movement. As we have grown to over 500 Members, we have seen how employee ownership is an idea that takes many different forms at different companies. Given all the nuance, it’s important to articulate what it means to certify a company as “employee-owned” and how we set this standard. This article walks through our journey to create a specific and clear definition of employee-owned and details what we learned along the way:Why it’s important to define “employee-owned”Themes from over 250 community conversationsWealth building unites our communitySetting a standard that people know and trust‍‍Why it’s Important to Define “Employee-Owned”The idea for Certified EO grew out of my work as a PhD student at Stanford Business School. I joined the Organizational Behavior department in 2013 with an interest in understanding alternative business structures. In my first year, my advisor pointed me in the direction of the academic work on employee-owned companies. I was excited to learn about the model and thrilled that research demonstrated the potential for increased firm performance and better outcomes for employees. While absorbing this work, I had frequent conversations about what I was learning with a long-time friend, Kramer Sharp. The more we talked about employee ownership the more interested we became in this unique business model. We were delighted to find that many companies we knew and loved were employee-owned. We were also inspired by the passionate service providers powering this transformative model. But we kept coming back to the same question: Why had we never heard of this before?Reflecting on our experience, it became clear that a major obstacle for the employee ownership community was lack of visibility. Finding employee-owned companies was a challenge. Some employee-owned companies were talking about it, but many were not. Worse, some companies were saying they were employee-owned when clearly they were not. There was no official list and the closest thing we could find required digging through government fillings. But even that list was incomplete. There simply was no easy way to find employee-owned companies.Kramer and I began thinking about ways to create a bridge between employee-owned companies and the general public. Looking at Fair Trade and Great Place to Work, we realized that certification is a proven model for coordinating and amplifying the voice of a movement. Combining the reach of employee-owned companies would make them the employer of choice for millions of job seekers and make being employee-owned a major differentiator with clients and consumers. But creating a certification program means creating a standard that people know and trust. So before we could start building towards our vision we had to define “employee-owned.”‍‍Themes From Over 250 Community ConversationsAt this time, the ESOP model was already over 40 years old. Kramer and I knew that we had to ground the definition of “employee-owned” in the practices and views of the community. We started by connecting with the major trade associations including the National Center for Employee Ownership, The ESOP Association, Employee-Owned S-Corporations of America, and the US Federation of Worker Cooperatives. We attended conferences to speak with service providers including lawyers, accountants, bankers, and consultants who create and administer employee ownership plans. And of course we contacted as many employee-owned companies as possible. Over the course of 2016 we had over 250 conversations about what it means to be employee-owned. It’s no surprise that we heard a variety of perspectives. For some companies employee ownership is about giving everyone a financial stake in the success of the business. WinCo Foods, for example, has had broad-based employee ownership for over 30 years and in the process has created millionaire grocery clerks. Other companies see employee ownership as encompassing both share ownership and employee involvement in operational decision making, for example open-book management. A few companies even see employee ownership as including a say in important governance issues. For example, Worker Cooperatives give their worker-owners equal votes in electing the board of directors. These three aspects of ownership - money, operational decision making and governance - were the common threads running through our conversations with companies and advocates. ‍‍Wealth Building Unites Our CommunityIt took about five conversations for us to see that it would be impossible to come up with a single definition that would include everything that everyone saw as important. While money, operational decision making, and governance were the common threads, everyone had a different opinion on their relative importance. So we started looking for a baseline. What were the aspects of employee ownership that would be broadly seen as essential? If a company did everything BUT one particular practice, would they still be viewed as employee-owned? With this shift in perspective, one element stood out: wealth building for working people. Everyone we spoke to mentioned wealth building as a critical aspect of employee ownership. We heard many stories of long-time employee-owners in front-line roles building substantial wealth. Companies with diverse employee ownership structures including Employee Stock Ownership Plans (ESOPs), Worker Cooperatives, Employee Ownership Trusts (EOTs), and the various Direct Share Ownership Models all include some combination of profit sharing and capital accounts that help employees build wealth. Others pointed out how broad-based wealth building aligns with the fundamental promise of America as a land of opportunity. While operational decision making and employee involvement in governance can be positive, the wealth building for working people stands apart in importance for individuals as well as our country. ‍Setting a Standard That People Know and TrustWith our direction focused on wealth building, we arrived at a set of standards that captured the common practices and was aligned with historical legislation:Ownership: at least 30% of the company must be owned by employees. Shares held by company founders do not count towards this threshold.Access: reasonable access to ownership must be open to every employee.Concentration: the ownership held in line with #1 and #2 must not be over-concentrated. This is controlled either through a cap on the maximum distribution or a maximum ratio between maximum and median distribution.It’s important to acknowledge that some things get lost when you simplify a complicated concept like employee ownership down to a binary of certified or not. For example, we’ve spoken with a company where employees hold a 10% stake that meets the access and concentration components of our standards. They were quick to point out that it might be much better to own 10% of a successful company than 100% of a failing business. There is merit to that point, but at the same time, 10% is not enough to call a company “employee-owned.” Others have told us that they felt our standards were too low. Why not set the bar at a majority ownership stake? There are a few strategic reasons for an employee-owned company to keep ownership below 50%, for example maintaining government purchasing preferences. The 30% threshold is also aligned with historical legislation, for example Section 1042 of the Internal Revenue Code. Our research shows that if every business became 30% employee-owned, wealth inequality would decrease to historic lows and the wealth of the median household would increase nearly four times. While 30% might sound low to some, it’s a very high bar. According to the U.S. Census Bureau there are roughly 1.3 million firms in America with at least 10 employees. We estimate there are approximately 6,000 companies that meet our certification standards. That means fewer than 1 in 200 businesses met our definition of employee-owned - less than half of one percent! Ultimately the goal of Certified Employee-Owned is to accelerate the creation of an employee-owned economy. Creating a standard that people know and trust is a means to an end. What matters most is that our standard is clear, easy to understand, and applied consistently so that it creates a bridge between the companies and the community. Uniting our voices through certification will help millions of Americans see the value of this model, create a resource that benefits our community, and increase the number of employee-owned companies. There has never been a more important time to build an employee-owned economy, and we’re thrilled that we can do our part through certification.This article was originally posted 3/21/22. It was updated on 1/5/2023.

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The Difference Between “ESOP” and “Employee-Owned”

February 16, 2022

If you’ve spent time learning about employee ownership, then you’ve certainly heard of Employee Stock Ownership Plans, or ESOPs. In fact, ESOPs are so common among employee-owned companies that many people use these terms interchangeably. You might be surprised to learn that, while ESOPs are certainly the most common type of employee-owned company, there is actually quite a bit of daylight between the two concepts. Not all ESOPs are employee-owned, and not all employee-owned companies have an ESOP. This article walks through the differences between “ESOP” and “employee-owned” including: Quick Background on ESOPs Not all ESOPs are Employee-Owned Many Employee-Owned Companies Don’t Have an ESOP Defining “Employee-Owned” Stronger Together Through Certification Quick Background on ESOPs ESOPs have grown dramatically since their creation in 1974 as part of the Employee Retirement Income Security Act (ERISA). According to the Department of Labor, there are currently around 6,300 companies with an ESOP. They range in size from dozens of employees to hundreds of thousands and operate in every industry imaginable. The ESOP’s popularity is due to a number of factors, including nearly 50 years of proven success, strong tax benefits, and a fantastic community of advocates and service providers. By law, ESOPs are extremely inclusive. The basic idea behind an ESOP is that it is a trust that owns company stock on behalf of a broad-based group of employees. Shares are usually allocated to eligible employees annually, and the eligibility criteria employees must meet to receive a share allocation are very open. Typically employees need to work 1,000 hours in a year to participate, an average of only 20 hours per week. Additionally, ESOP shares are paid out of company profits and are allocated to employees at no cost. These open criteria drive high participation and ensure that workers at ESOP companies benefit when their employer is successful. Not all ESOPs are Employee-Owned While all ESOPs are broad-based, the percentage of total outstanding stock owned by the ESOP varies dramatically from company to company. There is no minimum, and in practice we’ve seen this range anywhere from a fraction of a percent to 100%. Of course, an ESOP that owns even just a tiny piece of a large and successful company can provide a great benefit to employees, especially since employees are not paying for the shares out of their wages. But there is a categorical distinction between a company operating a small broad-based, share-ownership plan as a benefit and a company where the employees own a substantial portion of the stock, perhaps even 100%. In other words, there is a difference between having an ESOP and being employee-owned. Further clarity can be gained by looking at a specific example. In the publicly available Form 5500 data, the largest company indicating they have an ESOP is Walmart. To be sure, that ESOP must be a nice benefit for some of the company's employees. However, it probably is not having the same impact as the ESOP at 100% employee-owned WinCo Foods, which has made many front line employees into millionaires. WinCo is just one of many inspiring stories of employee-owners building life-changing wealth. That’s why it’s important to remember that having an ESOPs doesn't always mean a company is employee-owned. Many Employee-Owned Companies Don’t Have an ESOP While the ESOP model is the most popular and successful structure used by employee-owned companies, it is not the only option. There are a number of alternative ways to implement significant and broad-based employee ownership, including Worker Cooperatives, Employee Ownership Trusts (EOTs), Employee Stock Purchase Plans (ESPPs), and equity compensation plans like stock options. Companies can even implement employee ownership through direct share ownership, though there are often benefits to using a more formal structure. Alternative structures play an important role in building an employee-owned economy because not every company is a good fit for an ESOP. Some selling owners want more flexibility. Others might want to ensure employees have a strong voice in governance. But perhaps the most promising use case for alternative structures is helping smaller companies become employee-owned. The setup and administrative costs of an ESOP can be prohibitive for companies under 40 people. In recent years we’ve seen a growing number of small companies using EOTs, direct share ownership, and even stock options. This encouraging trend could greatly expand the employee ownership community. Defining “Employee-Owned” If not all ESOPs are employee-owned and many employee-owned companies don’t have an ESOP, then it begs the question: How do you define employee-owned? Answering this question was priority number one when we started Certified Employee-Owned. Our vision from the very beginning has been to use certification to accelerate the creation of an employee-owned economy. Programs like Great Place to Work and Fair Trade show that certification builds support by amplifying the voice of the movement. We quickly realized that, while companies with different employee ownership structures have distinct administrative and legal concerns, they would all benefit from the visibility created by certification. With this big-tent vision in mind, we set out to create a definition of “employee-owned” that could be applied to any ownership structure. We searched extensively for historical precedent and had over 250 conversations with companies and advocates. Ultimately, we identified financial ownership as the common thread running through legislation and views of advocates from across the space. With that in mind, we focused our definition on three concepts: Ownership: At least 30% of the company must be owned by employees (excluding founders) Access: Reasonable access to ownership must be open to every employee Concentration: Ownership among employees cannot be too concentrated Stronger Together Through Certification It’s important to emphasize that the point of this definition is not to determine who is a “good” or “bad” company. Ultimately we are focused on what certification can accomplish for the employee ownership community and a necessary part of any certification program is a specific and clear delineation between who does and does not meet the standards. Setting a standard people know and trust has intrinsic value, but it also enables the creation of shared resources. Our Directory of Employee-Owned Companies is an up-to-date list of every company we know of that, to the best of our knowledge, meets the above definition of employee-owned. The directory create a simple way for people to find employee-owned companies, but it’s only possible with a clear definition of employee-owned. Our certification mark is the strongest way for a company to communicate that they meet high standards of significant and broad-based employee ownership. Over one hundred Members are using the mark on their websites and major companies like WinCo Foods and Litehouse are using the mark on widely circulated products and packaging. The foundation of this branding initiative is the trust created by third-party certification. Certification is changing the game for the entire employee ownership community, including ESOPs, and that’s why it’s important to understand the difference between “ESOP” and “employee-owned”. This article was originally posted 2/16/22 and was updated on 3/28/2023.

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10 Reasons Business Owners Have Transitioned to Employee Ownership

January 20, 2022

Since launching Certified Employee-Owned in 2017, I’ve spoken to over 1,000 employee-owned companies. These conversations are the highlight of my day. I love hearing stories about entrepreneurs starting companies and I'm always curious to learn how founders have come across employee ownership. Spending so much time talking to entrepreneurs and leaders in the employee ownership space has shown me a few interesting trends. Most notably, the vast majority of companies I have spoken with did not start out as employee-owned, but transitioned after many years in business. I haven’t kept exact numbers, but I would estimate this is the case with over 95% of the companies I know. While there are as many reasons for conversion as there are founders, there are a few trends that stick out. Here are 10 reasons that stand out as to why business owners have made the transition to employee ownership, along with a paraphrased story for each one that captures the essence of the journey: 1. Keeping it in the family‍“ Starting this company was my dad’s greatest accomplishment and growing the business has been my life’s work. But none of my kids were interested in taking the reins. I know what can happen when a company is taken over by a strategic or private equity and I didn’t have the heart to do that to people I’ve known my entire life. Transitioning to 100% employee-owned was my way of keeping the company in the family.” 2. Giving our owners partial liquidity‍“ To me going 30% employee-owned was a no-brainer. I got some liquidity, and now my people have a direct stake in the action, so the company is doing even better. As a bonus I have a built in succession plan. I don’t have any plans to step back, but you never know what will happen and it’s great to have that option.” 3. Continuity through succession‍“ This company was her baby, she wasn't going to sell it. She really liked the idea of leaving the company in the hands of the employees, because the alternative was going the way of other companies that she had seen bought out and changed completely.” 4. Staying an anchor in our community‍ “Our founder was deeply concerned with what would happen to the local economy. He knew that if he sold to a strategic buyer, they would move the headquarters and maybe even the factory. We’re the biggest employer in the area so that would have devastated the town. By transitioning to EO our founder kept us local and kept the town alive.” 5. Start-up business sharing equity‍ “A lot of start-ups share equity with talented employees in exchange for under-market wages, but my vision for sharing equity in the company was different. I wanted all my dedicated employees to have skin in the game from the beginning. The set formulas for sharing equity with only early employees didn’t work for me.” 6. Aligning employees at a time of growth‍ “After years of start-up hustle, we were finally poised to take our company to the next level, and employees were going to be critical to our growth. We wanted to align the interests of owners and employees by giving employees a stake and a better understanding of what makes our company tick.” 7. Finding alternatives to private equity‍“ Private equity started knocking at our door and it made us think critically about the future of our company. We believe in our mission, our people, and the services we provide and are not willing to compromise those to get the highest dollar. Some of our shareholders were pressuring us for liquidity, and we needed to figure out how to provide that without overburdening the company with debt.” 8. Mission-driven at our core‍ “We have been mission-first since day one. I started the business to help us transition to a sustainable future. Growing the company and making money has always been an outcome of our success, not a goal. I transitioned us to employee-owned to lock that mission-focus into our DNA. I want everyone here to have a stake in our future and to feel as bought-in as I feel as the founder.” 9. Feeling alone at the top‍ “I did not expect to become a solo entrepreneur running a company by myself. I always wanted to do this as a team. I don’t have a co-founder anymore, and I want everyone to be more bought in and engaged as co-owners of this business.” 10. Democracy at work‍“ We wanted to be a worker cooperative from the start. It is the only corporate structure that aligns with our values - that each worker should have equal say in the governance of the company. We are in this together and that should be reflected in every aspect of our structure and culture. ”Are you a business owner looking to learn more about employee ownership? A great place to start is our overview.

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