Equitable Economy

We Must Build an Employee-Owned Economy

December 6, 2022

When it comes to work, America is at a crossroads. Good jobs are getting harder to find as roles are increasingly contracted, gigged, and automated. Companies are being gobbled up through consolidation or closing down as the baby boom generation retires. On their own these trends have made work more precarious for millions. Together they are undermining the foundational premise of America as a land of opportunity. While momentum leads to a future of work that is ever more precarious, it is not too late to change course. We can create shared prosperity by building an employee-owned economy. Today’s challenges are decades in the making. The period just after World War 2 marks a high-point for job security. Large firms like General Motors and IBM sought dedicated employees and offered them stable careers. When companies did well, people did well. But globalization, offshoring, and technological change have broken that connection. Productivity and wage growth moved in lockstep from 1948 to 1978, but since then they have decoupled with productivity growing four times faster than average compensation. Companies are getting more valuable, but fewer of those gains are being passed on to workers. The rise of the gig economy on the heels of the financial crisis has accelerated this trend. If you work for Uber you might be a programmer with generous compensation that includes stock options, but more likely you are a driver, ping-ponging around town for the lowest price the algorithm thinks you’ll take while covering expenses out of your own pocket. The gig economy has exploded since 2009 with 23M Amricans (9% of adults) working a gig job in 2021. As more jobs are demoted to gigs, millions of Americans will find the skills they have spent years honing are no longer enough to make ends meet. What will these people fall back on? For many there is no safety net at all. According to the Federal Reserve’s Survey of Consumer Finances, in 2019 13 million households had negative net worth. And for others, a small net might be there but they can’t afford the fall. Just 4 in 10 Americans have sufficient savings to cover an unforeseen expense of $1,000. Looking at fifty years of increasingly precarious work combined with a snapshot of Americans’ finances, one thing is clear: millions could soon find themselves with no financial or human capital. This is a major concern for every single American. Since our country’s founding, leading thinkers have recognized that a healthy republic is rooted in the broad-based ownership of property. Founding Fathers such as Thomas Jefferson saw the small landowner as the bedrock of our democracy because owning land made them independent and active citizens. This was also the guiding principle behind the Homestead Act of 1862, which created 4 million family farms. These ideas and policies focused on land because in the agricultural economy of the 1700s and 1800s, farmland was the most important asset. Today, the most important asset is business ownership. Owning a business is how great fortunes are built, just look at Elon Musk or Bill Gates. According to the 2019 Survey of Consumer Finances, business ownership is the largest asset class, with public and private companies accounting for over $32T of wealth, much more than home equity ($19T). And it’s not just the household names who own stock. Among the Top 1%, the largest asset is ownership of private businesses, accounting for 38% of their portfolio with average value of $10.8 million, and the second largest asset is public company stock, accounting for 18% of their portfolio with average value of $5.1 million. Yet, the bottom 50% of households by wealth hold a combined 0.25% of all business ownership, just $1,347 per household. Securing the future of our democracy means expanding the opportunity of business ownership. Thankfully we have a solution that has been tested and proven for 50 years: broad-based employee ownership. The idea that employees should hold some stock in their employer has a long history, but it got meaningful traction with the creation of the Employee Stock Ownership Plan (ESOP) in 1974. Today, there are over 5,600 employee-owned companies operating in every industry and state. They range in size from 5 people to over 220,000 and employ over 2.5 million people. Employee-owned companies like Publix Supermarkets, Wawa, and Bob’s Red Mill represent the blueprint for modernizing the American dream. Employee ownership changes the relationship between the company and employee by ensuring that everyone who works at a company has reasonable access to the benefits of ownership. Making employees into employee-owners helps them build wealth. A 2021 study by the National Center for Employee Ownership found the average employee-owner had roughly $67,000 more in retirement wealth, compared to workers at non-employee-owned firms. And this can scale. Our research calculates that if every American company became employee-owned the net worth of the bottom 50% by roughly $81,000 on average. Employee ownership also benefits workers the first day they walk in the door by creating a better working environment. Broad-based ownership aligns everyone around a unified goal and creates a shared purpose. Alignment increases commitment, trust, and accountability. This leads to stronger relationships, closer connections with coworkers, and increased job stability. Finally, employee ownership makes companies stronger. Decades of research show that broad-based ownership combined with high-involvement management systems increases key performance indicators like productivity, revenue growth, and employee engagement. Even large private equity firms are beginning to see employee ownership as a way to supercharge engagement and increase business performance. Taken together, the evidence on wealth building, culture, and company performance show employee ownership is a win-win-win: it’s good for workers, good for business and good for our country. Transitioning to an employee-owned economy would create shared prosperity that benefits all Americans, but we must act now. A start would be converting a portion of the 2.3 million companies owned by Baby Boomers, the youngest of whom will hit 65 in 2029. But we must think bigger than just business conversion. An employee-owned economy represents an entirely new way to view work and a new relationship between the company and employee. We must make it easy for people who understand this difference to find employee-owned companies. We must coordinate and amplify the voice of our movement to share the advantages of employee ownership far and wide. And we must set a standard that people know and trust to defend against the inevitable pretenders. The need for broad-based business ownership has never been greater. The time has come to build an employee-owned economy.

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What Does “Employee Ownership” Mean?

September 20, 2022

Employee ownership is in the spotlight. State and federal legislation has recently advanced to promote the model. Articles discussing the advantages of employee ownership have appeared in Forbes, Nonprofit Quarterly, and Harvard Business Review. Mainstream investors are even starting to take notice with large private equity firms exploring how employee ownership could enhance their acquisitions.But what exactly does “employee ownership” mean? The big idea behind employee ownership is to distribute the rights and responsibilities of business ownership more broadly. Generally these rights and responsibilities fall into three categories.‍1. Ownership & MoneyAll forms of employee ownership involve expanding financial opportunity. Workers build wealth through participation in capital accounts and/or profit sharing. Common examples include stock granted through an Employee Stock Ownership Plan (ESOP), shares bought through an Employee Stock Purchase Plan (ESPP), equity upside accessed through grants of stock options, and cash received through profit sharing distributions from an Employee Ownership Trust (EOT) or Worker Cooperative. Regardless of the structure, employee ownership creates alignment by ensuring that employees benefit financially when their company is successful. A key feature across all forms of employee ownership is that participation must be ”broad-based.” Access to ownership must be open to everyone at the company and the concentration of ownership must be limited. In some cases employees are expected to pay for their ownership stake, but more frequently it is a benefit of employment. The broad-based nature of employee ownership is critical to creating the environment of trust and respect that characterizes successful examples of the model.Stories of workers building life-changing wealth present an inspiring case for employee ownership. Two examples covered in a past post illustrate this well. First is WinCo Foods. After 40 years as an ESOP, the 130 workers at a single store in Corvallis, Oregon had a combined $100M in ownership wealth, and across the company, over 400 front-line employees were “millionaire grocery clerks.” Second is Springfield Remanufacturing Company (SRC). From 1983 through 2017, the company paid nearly $100M in distributions to its employee-owners. SRC’s CEO, Jack Stack highlights one person who “started here in 1983 making $7.50 an hour [and] has now got $1.2 million.” While the plural of “anecdote” is not “data,” most of the ESOPs I have spoken to that are at least 25 years old have created front-line millionaires. To demonstrate that these stories are not one-off examples, but instead point to the transformative potential of employee ownership, I teamed up with Professor Ethan Rouen of Harvard Business School to answer the question: what would happen to wealth inequality if every American business became employee-owned? We found that this shift would reduce wealth inequality to recorded lows and the wealth of the median household would nearly double from $121,760 to $230,076. The potential to build broad-based wealth is the common thread connecting all corners of the employee ownership community. 2. Ownership & Operational Decision MakingThe second major aspect of ownership is operational decision making. Many employee-owned companies set up practices that expand employees’ voice in setting day-to-day processes, encourage them to generate new ideas, or even increase their role in setting the company’s overall direction. Increased involvement in decision making often goes hand-in-hand with education about financial literacy and open book management. The idea is that providing workers with increased agency, access to information about the business, and the knowledge required to use this information can help them better think and act like owners, which will then improve company performance. These practices are often implemented as part of a comprehensive system such as The Great Game of Business, GRITT, or the Entrepreneurial Operating System. As an added benefit, these systems can create a more engaging and enriching environment for employees, which can also increase retention. Academic research has found substantial benefits associated with high-involvement decision making practices at employee-owned companies. Studies over the past few decades have observed higher sales growth, profitability, and survivability. A key takeaway from this work is that financial ownership alone is not enough to alter company performance. These research findings align with intuition. A company's performance is the result of all the actions taken each day by everyone at the company. Because of this, changes in behavior are necessary to see changes in outcomes. Giving employees shares of stock without creating the conditions for behavioral change seems unlikely to impact company performance. That’s why many see employee involvement in decision making as going hand-in-hand with the financial aspects of employee ownership. 3. Ownership & GovernanceThe third major aspect of ownership is governance. At some companies, workers play a role in nominating, electing, and potentially serving on the board of directors. The most common way to implement employee involvement in formal governance is through a worker cooperative. While details vary by company, the key feature of a worker cooperative is that worker-owners elect the board democratically, on a one-person, one-vote basis. In theory, this creates a situation where workers control the organization, and management is formally accountable to the workforce. Based on our list of employee-owned companies, I estimate that currently around 7% of employee-owned companies have some employee involvement in governance.‍Employee Ownership in PracticeIn practice there are as many different approaches to employee ownership as there are employee-owned companies. For many, employee ownership is purely about wealth-building. But others see the financial aspects of ownership and the day-to-day involvement in decision making as inseparable. The specific meaning of employee ownership can even evolve within the same company over time. For example, a company might begin their employee ownership journey through a succession plan for a departing founder and with an initial focus on long-term wealth building. But as debt is paid down, shares are distributed, and employees start to see what’s at stake, leadership might become interested in increasing financial literacy and opening up the books to help employees become even more engaged as owners. Once we recognize the different facets of employee ownership, a new question arises: what does it mean to say a company is “employee-owned?” This might seem like the same question we asked at the beginning of the article but, as we’ve discussed previously, having some employee ownership doesn’t necessarily make a company employee-owned. Consider a company that distributes a small portion of its stock to executives, or a company that provides increased voice without providing any sort of financial benefit. Are they “employee-owned?”Creating a simple and clear definition of employee-owned was the first major challenge we faced when launching Certified Employee-Owned. After speaking with roughly 250 members of the community, including trade associations, service providers, and of course companies, we arrived at a definition that focused specifically on the financial aspects of employee ownership. We felt this big tent view would maximize our ability to build support for the model while ensuring that employees at companies we certify have the opportunity to build life-changing wealth. You can read the full account of how we set a standard meaning for “employee-owned” here.

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How Many Businesses Are There in America and What Does it Mean for Employee Ownership?

July 14, 2022

Building an employee-owned economy can create a more prosperous future. Employee-owners benefit from higher retirement savings and increased job security, while employee-owned companies anchor jobs in local communities. That future begins by increasing the number of employee-owners. Some companies start out as employee-owned, but the vast majority convert after operating for some time under a different ownership structure. Since launching Certified Employee-Owned in 2017, we have spoken to over 1,000 employee-owned companies. Fewer than 10 began as employee-owned. It’s difficult to generalize, but based on our experience we think that over 95% of employee-owned companies were created through conversion. The importance of conversion means that advocates of employee ownership need a good understanding of the broader business landscape. The best source on the size and number of American businesses is the Census Bureau’s Statistics of U.S. Businesses (SUSB). In this article we will use the SUSB to analyze the business landscape and draw implications for the employee ownership community. Our key takeaways include: The number of companies large enough for employee ownership has been steadily rising since 2011 and now stands at just over 1.3 million. Most Americans work at large companies, but most US businesses are small. To drive a dramatic increase in the number of employee-owners, the employee ownership community needs a strategy for converting businesses with over 500 employees. Three sectors represent major opportunities for growing employee ownership: Health Care & Social Assistance; Accommodation & Food Service; Professional, and Scientific & Technical Services. Total Number of American Businesses According to the U.S. Small Business Administration, there were 32.5 million American businesses in 2021, but there’s a catch. That number is skewed because it counts every single corporation, including those setup by independent contractors and even shell companies created solely to hold an asset. There’s no bright line between a legal corporation and what a normal person would consider a business, but a reasonable breakpoint might be having at least one paid employee. That is the line used by the SUSB, and in 2019 there were 6,102,412 businesses meeting this criterion. The concept of employee ownership only starts to have real meaning when a company includes multiple non-founder employees. While there are exceptions, most companies exploring employee ownership have at least 10 total employees. A company of this size will generally have the resources that enable conversion while also seeing benefits from a formal employee ownership structure. Using the SUSB’s size categories, we found that in 2019 there were 1,311,698 businesses with at least 10 employees. We estimate that there are roughly 6,000 employee-owned companies in America (our Directory provides an up-to-date list of all the ones we know about). That means that employee-owned companies are just 0.5% of the total number of companies with at least 10 employees. The chart above shows how the number of companies with at least 10 employees has changed since 1999. It dipped slightly at the turn of the millenium following the dotcom crash, increased steadily in the early 2000s before dipping again after 2006 and plunging after the 2008 financial crisis. After hitting a bottom of 1,173,373 in 2011, the number of companies with at least 10 employees has seen year-over-year increases every year through 2019. For the employee ownership community, it’s encouraging to see that the number of companies that are large enough to consider employee ownership has been steadily rising for almost a decade. Size Distribution Analyzing the SUSB size categories, we see that US businesses have a skewed distribution of size. While most firms are small, most people work at large employers. Roughly 30% of private-sector workers work at the 1,112 firms with over 10,000 employees, while the 4,790,714 businesses with fewer than 10 employees account for less than 10% of private sector employment. In other words, firms large enough to support an employee ownership program account for over 90% of the private-sector workforce. The skewed distribution of firm size presents a tradeoff for employee ownership advocates: do we focus on the number of companies that are employee-owned or the number of people working at employee-owned companies? If we are interested in maximizing the number of employee-owned firms, we’re going to have the most success focusing on small companies. But if we are interested in maximizing the total number of employee-owners, the emphasis should be on the big companies. This tradeoff is mirrored in the change in firms and employment from 1999 to 2019. The bulk of firm and employment growth was driven by large firms. Over this time period, the total number of firms with at least 10 employees increased 9% and employment at these companies increased 22%. Almost all of the increase in the number of firms was driven by companies with less than 500 employees, while 75% of the change in employment was driven by firms with 500 or more employees. The trend is clear: while there are more companies now than 20 years ago, the bulk of new private sector employment over the past two decades has been due to growth of larger firms. Industry Distribution Finally, we use the SUSB industry categroies to analyze changes in employment and total number of firms by industry. It’s worth noting that all categories here are based on the North American Industrial Classification System (NAICS) and that the SUSB excludes railroad employees, agricultural production employees, and most government employees. The following chart shows employment by Industry for 2019 for all firms with at least 10 employees. Below is a table with both employment and number of firms by industry. Note that the number of firms doesn’t align exactly with the previous section, likely because some firms operate in multiple industries. The four largest industries by employment - Healthcare & Social Assistance, Retail Trade, Accommodation & Food Services, and Admin, Support & Waste Management - are all part of the service sector. Manufacturing, once the backbone of the American economy, is now the fifth largest sector by employment. Construction and Professional, Scientific & Technical Services, and Other Services (excluding Public Admin) are notable for having a high number of firms of a smaller average size. Finally we look at how the number of firms and employment by industry have changed over the last two decades. This chart above shows the percent change from 1999 to 2019. Dramatic increases of over 50% employment occured in many service sectors including: Accommodation & Food Services; Educational Services; Health Care & Social Assistance; Arts, Entertainment & Recreation, Professional, and Scientific & Technical Services; and Admin, Support & Waste Management. Several industries show signs of consolidation with increasing employment and decreasing number of firms: Information; Finance & Insurance; Retail Trade; and Wholesale Trade. Finally, the dramatic decline in manufacturing can be seen in a 26% decrease in the number of firms and 28% decrease in total employment. Combining current firm size and employment with growth trends can help identify large and growing industries which would be good to target for the expansion of employee ownership. Based on the above charts, Health Care & Social Assistance; Accommodation & Food Service; and Professional, Scientific & Technical Services merit further investigation.

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New Partnership: Certified Employee-Owned & The Healthcare Anchor Network

May 24, 2022

Certified Employee-Owned and The Healthcare Anchor Network (HAN) are excited to announce a new partnership to help over 1,000 hospitals identify procurement opportunities with employee-owned companies! HAN is a nationally recognized collaboration of health systems leveraging their purchasing, hiring, and investing power to improve health and well-being by addressing economic and racial inequities in the communities they serve. HAN works to achieve a critical mass of health systems adopting the anchor mission, a proactive commitment to leverage their economic, political, and human capital to drive equitable, local economic impact. HAN was launched in May 2017 and today represents over 70 health systems with more than 1,000 hospitals, $75 billion of purchasing power, $150 billion of invested assets, and almost 2 million staff. HAN members include Boston Children’s Hospital, Cleveland Clinic, Kaiser Permanente, and University of California San Francisco. “We’re delighted to have the support of Certified Employee-Owned's knowledge of the field to help our members know the Certified Employee-Owned companies in their service areas and look for opportunities to do business with them,” stated David Zuckerman, President & Founder, Healthcare Anchor Network. Employee ownership is increasingly recognized as a way to reduce wealth inequality and strengthen local economies. By procuring products and services from employee-owned companies, anchor institutions will create good jobs while benefiting from increased service quality. To date, the main challenge preventing anchors from accessing this win-win opportunity has been the difficulty of finding employee-owned companies. As the only national certification focused on employee-owned companies, Certified Employee-Owned is perfectly positioned to help anchor institutions find employee-owned suppliers. Our standards of significant and broad-based employee ownership span all types of employee-owned companies including Employee Stock Ownership Plans (ESOPs), Worker Cooperatives, Employee Ownership Trusts (EOTs), Equity Compensation Plans, and more. Since our launch in September 2017, we have been working to build a list of verified employee-owned companies as well as tools to help people explore employee ownership, for example our Directory of Employee-Owned Companies. This partnership represents the first step to creating widespread purchasing preferences for employee-owned companies. The initial focus with HAN will be on helping their health systems identify current vendors who are employee-owned and educating HAN members on the benefits of doing business with employee-owned companies. Some health systems may be interested in taking the next step of integrating employee ownership into their process for identifying future vendors and filling open contracts. The experience and success stories from this partnership will help us build toward future purchasing engagements and could provide the proof-of-concept required for state or even federal purchasing preferences for employee-owned companies. To learn more about how we are working with HAN to promote purchasing from employee-owned companies, register for our upcoming webinar on July 21st.

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Capital Accounts and Profit Sharing: The Two Ways Employee-Owners Build Wealth

April 27, 2022

Employee-owned companies are great at building wealth for working people. Take WinCo Foods. After roughly 40 years as an ESOP, the 130 workers at a single store in Corvallis, Oregon had a combined $100M in ownership wealth and across the company, over 400 front-line employees were “millionaire grocery clerks”. Or consider Springfield Remanufacturing Company (SRC). From 1983 through 2017, the company paid nearly $100M in distributions to its employee-owners. CEO Jack Stack highlights one person who, “started here in 1983 making $7.50 an hour [and] has now got $1.2 million.” While not every employee-owner will become a millionaire, research shows that these remarkable examples highlight broader trends. The National Center for Employee Ownership found that, on average, employee-owners have nearly double the retirement wealth compared to non-employee-owners ($170,326 versus $80,339). At Certified Employee-Owned, we used data from the Federal Reserve to show that if every American business became employee-owned, wealth inequality would be reduced to historic lows and the wealth of the median household would increase from $121,760 to $230,076. How are employee-owned companies helping people build this much wealth? While there are many ways to create and run an employee-owned company, there are only two ways that these businesses put money in the pockets of their workers: capital accounts and profit sharing. Capital Accounts Capital accounts are distinct accounts that track the ownership value held by individual employees. Capital accounts can hold company stock directly or they can hold derivatives such as stock options. Employee Stock Ownership Plans (ESOPs), Employee Stock Purchase Plans (ESPPs), stock options or even direct share ownership are all forms of capital accounts. An individual’s capital account is typically funded through an initial grant or annual contributions, either made by the company as in an ESOP, or funded by the employee-owner, as in an ESPP. Today there are over 5,100 employee-owned companies using capital accounts. The key feature of capital accounts is compound growth.The value of an employee’s capital account is tied to the performance of the company through the share price. Assuming the business is performing well, the company’s share price will increase and the value of the capital account will go up. Importantly, the increase in value from share price growth applies both to contributions as well as prior share price growth, a process known as compounding. Compound growth is how employee-owners build potentially life-changing wealth over time. Specifics vary widely, but many reasonable scenarios that reflect real-world practice lead to six-figure wealth building, and, as we saw with WinCo and SRC, companies that are employee-owned for 25+ years usually have front-line millionaires. While compound growth has tremendous wealth-building potential, the key ingredient is time. Drawing the account down will erase the compounding, and building substantial wealth typically requires the capital account is untouched for 20 years or more. Eventually the employee-owner must be able to turn the capital account back into cash. Because employee-owned companies are private, there are generally two options: the company buys the share back or the accounts are cashed out when the company is sold. Due to the nature of business valuation, companies almost never will have enough cash on hand to buy back all shares at any given point in time. This leads to a situation at mature capital account companies called “share recycling” where shares are bought from selling owners and recycled back to new owners. For example, at ESOPs shares are bought back from employee-owners who have left the company, maybe because they retired. This is a time-tested practice that can continue for a long time so long as both the employee ownership plan and the company are managed well. Profit Sharing Profit sharing is when a company distributes some portion of profits back to employees as cash on a regular cadence. Profit sharing is a flexible concept that is implemented in a variety of ways and not all forms of profit sharing can be considered ownership. For example, a plan that exists solely at the discretion of management can provide a nice benefit, but it is not ownership because it can be taken away by management without any sort of monetary compensation to the employees. In line with our certification standards, to be considered ownership a profit sharing plan must have a legal claim on part or all of the business and it must have codified distribution rules that are inclusive and not overly concentrated. Formal profit-sharing benefit plans that own shares of company stock meet these criteria, but in our experience these plans rarely own enough of the company for it to qualify as “employee-owned”. Currently we see just two types of employee-owned companies where the primary wealth building mechanism is profit sharing and enough of the company is owned by the profit-sharing structure to qualify as employee-owned: Worker Cooperatives and Employee Ownership Trusts (EOTs). We know of roughly 350 companies operating through these two vehicles today. The key feature of profit sharing is liquidity. Profit sharing is typically done on a quarterly or annual basis, and once the profits are in and the benefit is calculated a check is cut to qualifying employee-owners within a few weeks. Profit sharing is immediately useful to employee-owners. Tradeoffs Between Capital Accounts and Profit Sharing The basic structure of capital accounts and profit sharing leads to a tradeoff between timing and wealth creation that impacts people and has implications for investing in growth. Wealth Building Due to compound growth, capital accounts help employee-owners build more wealth than profit sharing. Specifics vary, but typically after 30 years compound growth is responsible for at least 80% of the value of a capital account. If the account owner had instead received their annual allocations of stock as cash payments, for example through profit sharing, they would have received just one fifth of the value of the capital account over time. I doubt that any employee-owner has ever built a million dollars in wealth through profit sharing alone. Liquidity (Timing of Payments) While capital accounts have greater wealth-building potential, profit sharing provides money to employee-owners sooner. Most capital account structures at employee-owned companies simply don’t give people the option to withdraw value before retirement because it would not be feasible for the business. On top of that, regularly withdrawing a portion of your capital account will diminish or even completely offset the benefits of compounding. Delayed gratification is inherent in the concept of capital accounts just as liquidity is inherent in the concept of profit sharing. The ultimate point of employee ownership is to create better lives for working people and if people have immediate needs, it simply might not be feasible to wait. While profit sharing has lower total wealth building potential, it provides greater liquidity and that tradeoff might be well-worth it for employee-owners, especially for those making a lower income. Investing in Growth The difference in payment timing between profit sharing and capital accounts has implications for how a company invests in its growth. Theoretically, the immediacy of profit sharing disincentives investing in the business, since investments reduce profit now in exchange for profit later. For example, consider a company thinking about using some excess cash this year to buy a piece of equipment that would increase profitability multiple years in the future. If employee-owners have a strong need for money now, what are they likely to choose? Capital accounts are fundamentally long-term and therefore can be much better for long-term alignment. Of course, the specific fit will likely depend quite a bit on industry. If the company is involved in a people-oriented business that involves little capital, for example consulting, profit sharing might do better in terms of aligning incentives. But if a lumpy investment is required, shares might be better. Why Not Both? Considering the advantages of both capital accounts and profit sharing it’s tempting to ask: why not do both? In theory you could split the ownership of a company in any way between capital accounts and profit sharing. In practice, we find that companies tend to do one or the other. We haven’t counted exactly, but I would estimate that over 95% of employee-owned companies either have capital accounts or they have a formal profit sharing structure, and if they are owned by a profit sharing structure, such as an EOT or Worker Cooperative, it almost always owns 100% of the company. There is a major exception: discretionary profit sharing. While not technically ownership, profit sharing that exists at the discretion of management shares the positive characteristics described above, specifically the immediacy of payment and the attendant culture-building benefits. For this reason, we see many companies that use capital accounts for their ownership while implementing a discretionary profit sharing plan as well. Typically it has a quarterly or annual cadence and the primary focus is to strengthen the connection between the success of the company and the success of the employee-owner. Wealth building for working people is the common thread running through all corners of the employee ownership community. Different companies in different industries employing different people will all find their own balance in the tradeoff between capital accounts and profit sharing. What’s important is to consider what’s right for your company and your people. Special thanks to Jon Shell of Social Capital Partners who read an early version of this post and suggested the point about “Investing in Growth”. That section is adapted from his email.

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