Certified EO Blog
The Top 25 Cities for Employee Ownership 2023
August 23, 2023
We’re excited to announce the release of The Top 25 Cities for Employee Ownership for 2023! Our second annual list showcases the cities in America that have successfully fostered a positive environment for employee ownership to thrive. Collectively, this year’s Top 25 Cities are home to 726 employee-owned companies. From small towns to large metros, these cities range in size from 23,000 people to over 2 million. They represent 17 states - 2 more than last year - with a range of cultures and political orientations. The diversity of cities in the Top 25 shows the broad appeal of employee ownership. Employee ownership changes the relationship between business and community. When employees have an ownership stake, companies become rooted in their communities. 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. 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 the number of employee-owned companies, their concentration relative to the city’s population, and the portion of companies that have recently become employee-owned. We restrict ourselves to all cities with at least five employee-owned companies. 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 in our Directory of Employee-Owned Companies. #1 - HARRISBURG, PENNSYLVANIA The capital of Pennsylvania, Harrisburg is the #1 city for employee ownership in 2023! Harrisburg is home to 15 employee-owned companies, including HB Global and Touch of Color Flooring. With a population of 58,320, Harrisburg has one employee-owned company for every 2,536 residents. Legislation has recently been introduced that would create resources for employee ownership. The legislation, LPRO 3835, also known as The Employee Ownership Assistance Program, would establish an office for employee ownership, as well as provide assistance to businesses converting to employee ownership. #2 - BERKELEY, CALIFORNIA Known for all things counter-culture, Berkeley is the #2 city for employee ownership. Home to 25 employee-owned companies, including Mal Warwick Donordigital, Alternative Technologies, Biofuel Oasis, Drought Smart Collective, and Heartwood Custom Woodworking. Berkeley continues to be a hub for employee ownership and worker cooperatives. In September 2022, California passed SB 1407, The Employee Ownership Act, to expand employee ownership in California. The law will establish a dedicated office for employee ownership. The law will aid existing businesses transition to employee ownership, while also expanding other employee-owned ventures, whether through new startups or aid provided to current employee-owned firms. The employee ownership office’s work encompasses ESOPs, worker cooperatives, and various other models. #3 - CINCINNATI, OHIO Sitting on the Ohio River, Cincinnati is the #3 best city for employee ownership and is home to 38 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. Cincinnati is also home to Co-Op Cincy, a non-profit organization that specializes in worker cooperatives. With a population of 304,548, Cincinnati has one employee-owned business for every 8,460 residents. #4 - FAIRFAX, VIRGINIA Just outside of the nation’s capital, Fairfax, Virginia is the #4 best city for employee ownership. Fairfax moved up 10 spots from 2022! Fairfax is home to 13 employee-owned companies, including Highlight Technologies, Miklos Systems, Bishop Equipment Company, and Foxhole Technology, Inc. With a population of 23,429, Fairfax has one employee-owned company for every 1,802 residents, making it the smallest city on the list. Major industries for employee ownership in Fairfax are consulting and engineering. #5 - MINNEAPOLIS, MINNESOTA Minneapolis rounds out the Top 5 as the #5 overall city for employee ownership! With 45 employee-owned companies, including Swanson & Youngdale, H2I Group, Kurt Manufacturing Company, Alliant Engineering, and Intuitive Technology Group. 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 – HONOLULU, HAWAII The state capital and largest city in Hawaii, Honolulu is the #6 best city for employee ownership. Honolulu is home to 37 employee-owned companies, including Generator & Power Systems LLC, Island Pacific Distributors, Roberts Hawaii, and The Solaray Corporation. Honolulu moved up 5 spots from the 2022 list! Top industries include engineering, wholesale, and HVAC services. A collaboration with Kaiser Permanente, Project Equity and Obran Cooperative, created the Business Resiliency Through Employee Ownership initiative to help improve economic health. One goal of this initiative is to provide resources for small businesses to transition to employee ownership. #7 – GRAND RAPIDS, MICHIGAN Located just east of Lake Michigan, Grand Rapids is the #7 best city for employee ownership, up from #12 on the 2022 list. Grand Rapids is home to 28 employee-owned companies, including Custom Profile, Progressive AE, Dorner Works, and Watkins Ross & Company. Employee Ownership Expansion Network (EOX) received a three year grant specifically focused on identifying businesses in the Grand Rapids and greater Kent County with owners that are near retirement to educate them on the benefits of employee ownership as an exit strategy. In turn, they hope to keep more businesses local while creating more employee-owners. #8 – HUNTSVILLE, ALABAMA Huntsville, Alabama is the #8 city for employee ownership in 2023, up 5 places from 2022. The most populous city in Alabama, Huntsville is home to 22 employee-owned companies, including Inline Electric Supply, 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. From introducing a state center to proposed legislation, there’s lots of interest in expanding employee ownership throughout the state. The Sand Mountain Cooperative Education Center for example, is working toward cooperative institutions to expand and strengthen worker-ownership. #9 - ST. LOUIS, MISSOURI St. Louis, Missouri is the #9 city for employee ownership in 2023. The gateway to the west, St. Louis is home to 31 employee-owned cities, including Balke Brown Transwestern, Roeslein & Associates, USA Mortgage. Top industries for employee ownership include real estate, construction, and engineering. With a population of 297,645 residents, St. Louis has one employee owned company for every 9,922 residents. #10 - WALNUT CREEK, CALIFORNIA Walnut Creek, California is the #10 best city for employee ownership for 2023, rounding out the top 10! Walnut Creek is home to 12 employee owned companies, including Brown and Caldwell, InVision Communications, and moved up 11 spots from 2022, MKA International, Inc., Davis Home Pros, and Skyline Capital Builders, LLC. 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 over 60 years of being employee-owned! #11 - OAKLAND, CALIFORNIA Oakland, California is the #11 best city for employee ownership in 2023. Known as “The Town,” Oakland is home to 39 employee owned businesses, the 8th most of any city. Companies in Oakland include MN Builders, Menke & Associates, Monterey Mechanical, and Paramount Export Company. 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. #12 – DUBLIN, OHIO Dublin, Ohio is the #12 best city for employee ownership for 2023, their first appearance on our list and the second city in Ohio to make the list! A suburb of Columbus, Dublin is home to 10 employee owned companies which include Parallel Technologies, FST Logistics, Ulrey Foods, Ruscilli Construction, and VARGO solutions. Co-Op Columbus supports the Central Ohio community to help worker-owned and shared-equity cooperatives thrive. #13 - ATLANTA, GEORGIA Atlanta, Georgia is the #13 city for employee ownership in 2023 and the second city to be ranked from Georgia. The capital of Georgia, Atlanta is home to 38 employee-owned companies, including 1910 Legacy Enterprises, Benning Construction Company, Ogden Forklifts, and Prestwick Construction Company. Atlanta is also home to the Georgia Center for Employee Ownership which aims to create more employee owners throughout the state by providing resources about the benefits of employee ownership. #14 – DENVER, COLORADO Denver, Colorado is the #14 best city for employee ownership for 2023! The Mile High City is home to 43 employee owned companies - making it the #3 city for total number of EO businesses, which include Progressive Retail Management, Bow River Capital, Logisticsflow, and Truce Media. The state’s capital also hosts the nation’s first permanent office for employee ownership which is a division of The Office of Economic Development & International Trade (OEDIT). The Colorado Employee Ownership Office offers resources for businesses who are considering employee ownership models. One of which is a grant to help offset the costs of transitioning to employee ownership. #15 – SPRINGFIELD, ILLINOIS Springfield, Illinois is the #15 best city for employee ownership. The state’s capital has 13 employee owned companies including Andrews Engineering, Henson Robinson Company, M.J. Kellner, and Springfield Electric Supply. With a population of 113,671, Springfield has one employee owned company for every 9,473 residents. #16 – FARGO, ND Fargo, North Dakota is the #16 city for employee ownership in 2023! The state’s most populous city, Fargo is home to 33 employee-owned companies, including Dakota Supply Group, OK Tire Store, and Fargo Glass & Paint Company. 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. #17 – SAN FRANCISCO, CALIFORNIA San Francisco is the #17 city for employee ownership in 2023. “The City by the Bay” is home to 57 employee-owned companies, making it #2 in terms of total number. , including Recology, Inheritance Funding Company, Matarozzi Pelsinger Builders. Recology Is one of the largest employee-owned companies from the list with just under 4,000 employees. 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. #18 – YORK, PENNSYLVANIA York, Pennsylvania is ranked #18 for employee ownership in 2023, up from #24 in 2022. The second city to be ranked from Pennsylvania, York is home to 9 employee-owned companies, including Weldon Solutions, Flnchbaugh, and Minnich’s Pharmacy. With a population of 43,907, York is also the second-smallest city on our list. York has one employee-owned company for every 5,488 residents. Top industries for employee ownership in York are engineering, HVAC, and manufacturing. #19 – BOULDER, COLORADO Boulder, Colorado is making its first appearance on the list as the #19 best city for employee ownership. The second city ranked from Colorado, Boulder is home to 11 employee owned companies which include Civic Consulting Collaborative, Namaste Solar, and Flatirons Bank. With a population of 107,645, Boulder has one employee owned company for every 9,786 residents. #20 – PORTLAND, OREGON Portland, Oegon is the #20 best best city for employee ownership in 2023. Known as the “City of Roses,” Portland is home to 37 employee-owned companies including Cascade Energy, 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. #21 – IRVINE, CALIFORNIA Irvine, California is the #21 best city for employee ownership in 2023 - making it the fifth (but not final!) city from California to be ranked. There are 17 companies that are headquartered in Irvine including Bivar, Inc., International Education Corporation, MAAS Companies, and Murow Development Consultants. With a population of 283,700, Irvine has an employee owned company for every 16,688 residents. #22 - LYNCHBURG, VIRGINIA Lynchburg, Virginia is ranked #22 for employee ownership in 2023. Lynchburg is the second city from Virginia ranked on this year’s list and to 14 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. #23 – SEATTLE, WASHINGTON Seattle, Washington is the #23 best city for employee ownership in 2023, a newbie to the list. There are 32 employee owned companies headquartered in The Emerald City including Charlie’s Produce, Harris Group, and PRR. Earlier this year, Washington’s governor signed a bill that would expand employee ownership resources. This new law will establish a state employee ownership program to promote ESOPs, worker cooperatives, and Employee Ownership Trusts (EOTs). This law can also provide a revolving loan fund to directly support the costs of transitioning to an employee ownership model. #24 – SAN DIEGO, CALIFORNIA San Diego, California is the #24 best city for employee ownership and the fifth (and final) city to be ranked from California. This SoCal city is home to 45 employee owned companies, including, ATA Engineering, Carrier Johnson, Epsilon Systems Solutions, Pegasus Clean, Quartus Engineering, Torrey Pines Landscape, and Western Lighting. In 2021, The Workforce Partnership released a study that revealed employee owned businesses throughout San Diego are more resilient and profitable than private companies. #25 – HOUSTON, TEXAS Coming in at the #25 best city for employee ownership, Houston, Texas is the final city on the list. Houston is home to 62 employee owned companies including Access Sciences Corporation, Pieper-Houston Electric LP, Stress Engineering Services. Houston is #1 for the number of employee owned companies and total population. 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. With a population of just over 2 million, Houston has one employee owned company for every 37,357 residents. Note: All data on the number of employee-owned companies comes from the Certified Employee-Owned Directory as of 7/28/2023. All data on city populations comes from the U.S. Census Bureau for the year 2020.
Read More ▶The #1 Best Practice For Building Ownership Culture
July 14, 2023
Every company wants to best engage their employees. When it comes to engagement, employee-owned companies have a secret weapon: building an ownership culture. If done correctly, an ownership culture unleashes people’s full potential by creating an environment where everyone can think and act like an owner. Companies see increased growth and profitability while employees experience a better day-to-day environment and wealth building through ownership. Our experience working with 575 employee-owned companies for over five years is that the number one best practice for building an ownership culture is cultivating a dedicated group of internal champions who are passionate about employee ownership. These champions are typically organized and empowered by the organization through the creation of an Employee Ownership Committee. This article outlines Certified EO’s perspective on creating and running a successful Employee Ownership Committee including: Getting Started With The Right People Structuring & Training Your Committee Introducing Your Committee Keeping Your Committee On Track Getting Started With The Right People What is a committee? It’s group of at least three people focused on a specific and shared goal. The key in the beginning is to start small. It’s better to have fewer people with higher average engagement. One way to find your initial members is to reach out to your workforce to let them know that you are starting an Employee Ownership Committee and provide easy ways for them to apply. It’s also fine to hand select people who you feel are passionate about employee ownership. Generally it’s nice to have your committee broadly represent the company. It’s better to have people from different levels within the company, and if your workforce is distributed across multiple locations, you might consider having a committee member from each location. But you have to start somewhere. Our recommendation is to focus on finding at least three people who truly understand employee ownership, and then build from there over time. Structuring & Training Your Committee In our experience, successful committees have leadership buy-in but are led by employee-owners. Once your committee is established, you’ll want to create a committee charter and by-laws to align on goals and expectations. Typically, this involves aligning on a mission statement, deciding on term limits, clarifying responsibilities of committee members, and defining leadership roles such as chair and vice chair. The consensus among our Members is that it’s best for the chair to come from the rank and file of the company, but it’s okay for the inaugural chair to be a member of management or leadership to ensure the committee gets off to a strong start. Your committee members should feel confident answering questions about your employee ownership. Your first few meetings as a committee might need to be spent entirely on educating the committee members, but this will be a worthwhile investment because the more knowledgeable your committee, the more successful they will be at building your ownership culture. Providing your committee with a budget will multiply their impact. Even though the committee should be run mostly by employee-owners, working with leadership will be key to ensure alignment and resource availability. Many Employee Ownership Committees have an executive sponsor who can advocate for the committee’s budget each year. Introducing Your Committee Your committee should be visible and accessible. Be sure to introduce the committee so employees know who to reach out to for questions. The committee announcement is also a good time to let your employee--owners know that they can expect more regular communication about employee-ownership. This is also a great time to remind your employees that, as owners, everyone at your company has a stake in the outcome. This way the committee announcement reinforces a key message about employee ownership. To make the committee accessible, we recommend creating a committee-specific email that employees can email with questions that anyone from the committee can answer. Many of our Members have seen great results from setting up office hours, where one or multiple committee members are available at a regular time (in-person or virtually) so that employee-owners can drop-in with questions. Even if nobody comes by, it’s nice for people to feel supported. Keeping Your Committee On Track Starting a committee is just the beginning of building a strong ownership culture. Maintaining a successful committee over time can be challenging. It’s important to keep things fresh. Rotate themes, responsibilities and committee roles so that your committee members stay interested and engaged. Consider adding new members annually, but always be sure to prioritize passion. Creating an annual communication plan is another way to keep your committee on track. Align on a theme for the year, decide on the right number of touchpoints, and identify who is responsible for each. A common pitfall is for the Employee Ownership Committee to become the party planning committee. An annual event is a great idea, but make sure your committee is focused on building your ownership culture throughout the year. The goals of your committee should change over time with your company and your employee-owners. In the beginning, your committee might be focused on building a strong foundation of EO basics. But over time the needs might evolve as understanding grows. At Certified Employee-Owned, we help guide our Members through this evolution while providing them the tools and playbook they need to share their ownership story. You can learn more about our work here.
Read More ▶6,237 ESOP Companies in America: A Deep Dive on the Department of Labor (DOL) 5500s
June 12, 2023
The Department of Labor Form 5500s are the most commonly cited source of information on Employee Stock Ownership Plans. If you are part of the employee ownership community, have been to a conference, or even just read an overview of the employee ownership space, you have likely seen statistics derived from the 5500s. For example, there are around 6,237 Employee Stock Ownership Plan (ESOP) companies in the US with roughly 14 million participants. The 5500s are certainly an important source of information for the employee ownership community. But they also have a fundamental limit: not all ESOPs are employee-owned, and many employee-owned companies don’t have an ESOP. As every business person knows, if you want to grow, you have to measure what matters. Getting an accurate count of the number of employee-owned companies in America requires a simple standard that applies across all ownership structures. Our certification provides just such a standard. Despite their shortcomings, the 5500s remain a vital source of information on employee ownership. This article will give you a crash course including: What exactly are the Department of Labor (DOL) 5500s? 6,237 companies with an ESOP The 10 largest ESOPs in 2020 Certification measures what matters Appendix: how to download the ESOP dataset What Exactly Are the Department of Labor (DOL) 5500s? The Department of Labor oversees employee benefit plans created by the Employee Retirement Income Security Act of 1974 (ERISA), including Simplified Employee Pension Plans (SEPs), Profit Sharing Plans, 401(k)s, and ESOPs. Any company maintaining one or more of these plans is required to report key plan information to the DOL on an annual basis via the Form 5500. The DOL maintains a public archive of fillings going back to 1999, and anyone can access the data directly. For advocates of employee ownership, the data have a few challenges. Companies can apply for extensions and submit updated fillings, which creats duplicates. As with all self-reported information, some variables are extremely noisy. Collection takes quite a bit of time, so complete DOL fillings come out on an approximate two-year lage. Finally, companies with an ESOP are not required to report the total percent of the company owned by their employees, so there’s no way to tell how much of the company is owned by the ESOP. 6,237 Companies With an ESOP As of June 2023, the most recently available and complete DOL filling is the 2020 vintage (see Appendix for more detail). If you download the files from the DOL website, you will be struck by the size. You can open the CSV in excel but your computer might need some time to think because the file contains over 248,000 rows. Did the number of ESOPs increase dramatically? Unfortunately not. The file is much larger than the number of ESOPs because, as mentioned above, all employee benefit plans are required to submit an annual Form 5500. Selecting all fillings with an ESOP yields 6,603 rows. Added together, these fillings report 14,150,373 total participants and 10,304,341 active participants. But some companies have submitted multiple fillings. Others indicate a plan year that is well before 2020, in one case as early 2000. Ignoring these and counting only unique EINs we find 6,237 companies reporting 13,321,687 total participants and 9,755,354 active participants. The 10 Largest ESOPs in 2020 Sorting this list by number of active participants we can get a sense for the 10 largest companies with an ESOP: Company Active Participants WALMART INC. 1,689,489 THE HOME DEPOT, INC. 424,733 CVS HEALTH CORPORATION 237,061 LOWES COMPANIES, INC. 305,280 TARGET CORPORATION 356,847 WELLS FARGO & COMPANY 340,353 BANK OF AMERICA CORPORATION 283,172 COSTCO WHOLESALE CORPORATION 184,379 JPMORGAN CHASE BANK, NATIONAL ASSOCIATION 271,120 AT&T INC. 281,286 Total 4,373,720 To members of the employee ownership community, this list is probably surprising. These aren’t the companies that come to mind when we think of large, employee-owned businesses. It helps to remember that companies with a wide variety of employee benefits plans are required to file a Form 5500. These companies are likely checking the ESOP box because they have an Employee Stock Ownership Plan that owns a small portion of the company, in addition to the many other employee benefit plans they offer (Walmart, for example, indicates 8 plan types). It might even be a legacy plan that is inactive. Due to the aggregate nature of the 5500s, it’s difficult to tell. Certification Measures What Matters The data quality issues highlighted above might cause some doubts about the reliability of the DOL 5500s. But the list of the 10 largest ESOPs points to a more fundamental issue: there’s a difference between ESOP and employee-owned. While they are a useful source of information, ultimately the DOL 5500s cannot tell us the number of employee-owned companies. Accurately measuring the size of employee ownership requires a definition of “employee-owned” that can be applied to any company. Certification provides many benefits, including a consistent standard that enables an accurate count of employee-owned companies. And as every business person knows, you have to measure what matters in order to create growth. At Certified EO, we have spent the past five years creating the infrastructure required to accurately count the number of employee-owned companies in real time. We have consolidated the publicly available sources of data of employee ownership, resolved the data issues, verified key variables by hand, and supplemented the raw data with critical information like the percent of the company owned by employees. The result of thousands of hours of work is our Directory of Employee-Owned Companies. The Directory provides an up-to-date number of employee-owned companies that changes as soon as we learn new information. It also transparently lists every employee-owned company and facilitates exploration through search and filters. The good news is that there are more employee-owned companies than companies with ESOPs! As of June 9th, 2023, our Directory lists 6,390 employee-owned companies, more than the number of companies with ESOPs listed in the 2020 DOL fillings. Using data collected during our certification process we estimate that employee-owned companies employ between 2 million to 3 million Americans. These numbers represent a more accurate measure of employee-owned companies and are a starting point for growth for our community. Appendix: Step-By-Step Instructions for Downloading the ESOP Dataset Go to the Form 5500 Datasets page on the Department of Labor website. Choose which year of data to download. In my experience, data sets are completed in the Fall on a 2-year lag According to the DOL, Go to the Form 5500 Datasets page on the Department of Labor website. Choose which year of data to download. In my experience, data sets are completed in the Fall on a 2-year lag According to the DOL, companies are required to file on “the last day of the seventh month after the plan year ends (July 31 for a calendar year plan),” but it seems like it takes a while for submissions to end up in the public data. For example, on June 12th, 2023 I downloaded the 2021 fillings and found roughly 6,100 entires for ESOPs. Either the number of ESOPs dropped dramatically from 2020 to 2021 or, more likely, the dataset is still being completed. Based on past years, I would expect that to happen in October of 2023 for the 2021 fillings. Open the data and filter for ESOPs using the TYPE_PENSION_BNFT_CODE variable Values of 2O, 2P, and 2Q correspond to non-leveraged ESOP, leveraged ESOP, and S corporation ESOP, respectively. Notice that companies will often have more than one plan type, it might be helpful to create a formula that returns true if the TYPE_PENSION_BNFT_CODE variable contains one of the ESOP indicators. After filtering you should see around 6,600 rows of data for the 2020 fillings, but be mindful of duplicates and late fillings. Sort by size (TOT_PARTCP_BOY_CNT) to begin your exploration.
Read More ▶Which States & Industries Are Best For Employee Ownership?
May 3, 2023
Everyone involved in employee ownership has a responsibility to strengthen our community. Advocates, service providers, trade organizations, businesses, and employee-owners all benefit when our ranks increase. But to grow successfully, we must understand where employee ownership thrives.In this article, we combine our certification data with data from the US Census Bureau to analyze where there are a surprisingly large number of employee-owned companies. Looking at company size, industry, and headquarters location, we find insights that will help our community grow:Manufacturing, Professional Services, and Construction are the top industries for EO. Combined they have almost 600,000 non-EO firms, which means focusing on these sectors seems like the biggest growth opportunity for employee ownership. 100 - 500 employees looks like a sweet spot for employee ownership. It also represents a large growth opportunity with roughly 93,000 non-EO firms and over 18 million employees.10 - 20 employees has far fewer employee-owned firms than baseline, likely due to limits of current structures. With over 640,000 non-EO firms it represents a big opportunity to grow firm numbers (less so employee numbers), but this requires new EO structures such as Direct Share Ownership.Vermont, North Dakota, Maine, Iowa, Hawaii are the top states for EO by concentration. Together these states have around 67,000 non-EO firms with more than five employees, which makes it a smaller opportunity in terms of raw numbers. But efforts in these states will benefit from dense networks of peer firms that can advocate for employee ownership.California, Pennsylvania, and Ohio are the largest states (by number of firms) with an above-baseline level of employee-owned companies. This represents an alternative geographical approach that might yield more potential conversions because combined these three states have over non-EO 480,000 businesses.Details on our methodology and additional findings are below.Data on Employee-Owned and US CompaniesTo understand where employee ownership thrives, we must have a detailed understanding of both the number of employee-owned companies and the number of all US businesses. Looking at only the raw number of employee-owned companies can be misleading because it ignores baseline concentration. For example, if 5% of employee-owned companies were in a particular state, we would interpret that differently if 10% or 1% of all businesses were in that state.Data on employee-owned companies comes from our Directory of Employee-Owned Companies, an up-to-date list of all businesses that meet our standards of significant, broad-based employee ownership. We pulled the numbers on March 1, 2023 and in some cases we supplemented our information with 3rd party sources. Data on all US businesses come from the Census Bureau’s Statistics of US Businesses (SUSB). At the time of our analysis the most recently available series was the 2019 data set. Employee-Owned Companies By Ownership StructureThere are a number of different ways a company can be employee-owned. The following table breaks down the number of employee-owned companies by ownership structure:By far, the most common structure is the Employee Stock Ownership Plan (ESOP), accounting for roughly 90% of employee-owned companies. Worker cooperatives are the second most common structure, followed by a few emerging structures that are small but have the potential for rapid growth. Direct Share Ownership in particular is showing promise as the best structure for companies with fewer than 30 people, including newly formed businesses. Due to the emerging nature of these structures, our numbers are best thought of as lower bounds. All told there are at least 6,416 employee-owned companies in America. Employee-Owned Companies By SizeUsing information collected during our certification process to project the number of employees at every employee-owned company, we can analyze the size distribution:It’s important to note that the distributions are censored to exclude firms with fewer than 10 employees. The purpose is to focus on companies that have a substantial number of non-founder employees, which is the relevant comparison group for employee ownership. The chart clearly shows that employee-owned companies skew larger than baseline. There are fewer in the 10 - 20 size bucket, with 48.9% of all firms in this range but just 12.7% of employee-owned companies. The two distributions are in the same ballpark for 20 - 100 employees. But all buckets greater than 100 employees have far more employee-owned companies than baseline. Roughly a third (32%) of employee-owned companies are in the 100 - 500 range, 4.4x the baseline of 7.2%. We see a similar trend in the 500 - 1,000, 1,000 - 2,500 and 2,500+ categories. The simplest explanation for the skewed distribution comes from the well-known fact that ESOPs generally don’t work for small companies. The cutoff varies depending on who you ask, but is broadly stated to be between 20 and 40 people. Given that 90% of employee-owned companies have an ESOP, that would explain the skew. There are two implications for growing employee ownership. First, if you’re doing ESOPs, focus on firms with at least 100 people. The large difference in concentrations leads us to think that the 100 - 500 size range in particularly good. According to the SUSB this range has 94,957 total firms with 18,612,620 employees, which makes it a sizeable growth opportunity.Second, there is probably a huge opportunity to create and promote structures that work for firms too small for an ESOP. The 10 - 20 size range has 640,827 firms in the 2019 SUSB, but we estimate just 712 employee-owned companies. In my opinion, Direct Share Ownership models using stock options are the most promising opportunity here.Employee-Owned Companies By IndustryNext we can use the North American Industry Classification Systems (NAICS) to look at the distribution of employee-owned companies by industry:Three data notes. First, while NAICS is included in the DOL 5500 data for ESOPs, it is extremely messy. We have gone through and recategorized the industry information for all 6,300+ companies in our database. Second, we exclude the “Finance and Insurance” category for this analysis because there are a large number of community banks with a small ESOP (below our 30% threshold) that we are still cleaning. Finally, again we exclude small firms, this time those with fewer than five employees.Three sectors, Manufacturing, Professional Services, and Construction, account for nearly half of all employee-owned companies (48.7% combined). All three sectors far exceed the baseline distribution, but Manufacturing in particular stands out with 2.7x the expected concentration. These industries likely represent a substantial growth opportunity for our community. In the 2019 SUSB there are 144,201 Manufacturing firms, 213,955 Professional Service firms, and 242,885 Construction firms. Converting and additional 1% of each of these industries would roughly double the number of employee-owned companies. The importance of the baseline analysis are clear when looking at Retail Trade. On an absolute basis this is the 5th largest sector for employee-owned companies. But the concentration is 48% lower than baseline. There are three sectors that jump out as particularly challenging for employee ownership. Health Care, Accommodation & Food Services, and Other Services (details on this category can be found here). While there are employee-owned companies in each of these sectors, they all lag the baseline substantially. These industries account for 39.6% of all businesses but just 3.4% of all employee-owned companies. There are two ways to interpret this lag. There might be something about these sectors that makes it difficult to be employee-owned, or these might be industries where there are missed opportunities. A good starting point might be to connect with the employee-owned companies who do operate in this sector to get their thoughts on what is driving this trend. Employee-Owned Companies By StateWe can use the headquarters location of each firm to look at concentration by State. Again we focus on firms with at least 5 employees:California, New York, and Texas are the top three states for total number of employee-owned companies with 13.4%, 5.5%, and 5.2% respectively. But again the baseline analysis provides a more nuanced picture. Both New York and Texas have a lower share of employee-owned companies than expected given their share of all businesses. The implication is that these states might not actually be as opportune for employee ownership as the raw numbers imply.In terms of concentration relative to baseline, the top states for employee ownership are: Vermont (3.0x baseline)North Dakota (2.5x baseline)Maine (2.3x baseline)Iowa (2.2x baseline)Hawaii (2.0x baseline)Together these states account for 6% of all employee-owned companies but just 2.7% of all companies. Together they represent 67,348 total firms with more than five employees, many of which will have peers or neighbors that are employee-owned. Another approach to geography is to look at the largest states with an above-baseline level of employee-owned companies. This would suggest California (1.1x baseline), Pennsylvania (1.1x baseline), and Ohio (1.4x baseline) are the places to focus. This approach might yield more conversions because these three states have over 480,000 businesses with at least 5 employees.The states with the lowest number of employee-owned firms relative to baseline are Delaware (18%), Rhode Island (44%), Nevada (45%), New Jersey (45%), and Florida (48%). Again the interpretation here is a complex. Perhaps there is something about these states that discourages employee ownership, or perhaps these states simply represent opportunities to bring employee ownership up to par. The only way to know for sure is by contacting some of the 267,410 businesses in these states to see how many are interested in exploring employee ownership.
Read More ▶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.
Read More ▶The Simple Concept That Turns Employee-Owners Into Millionaires
March 10, 2023
Last month we looked at three inspiring stories of employee-owners building life-changing wealth. We saw how regular grants of company stock at companies like WinCo Foods and Springfield Remanufacturing Company helped front-line workers build eye-opening account balances, in some cases over a million dollars. These stories are incredible, and perhaps even sound too good to be true. But what if I told you that these employee-owners were able to build such large amounts of wealth by leveraging the same force that billionaires like Warren Buffet used to build their wealth? The magic behind employee ownership is the magic behind all great fortunes: compound growth. In this post we’re going to take a peek under the hood at the surprising power of compound growth including: Warren Buffet’s Journey to Twelve Figures What Exactly is Compound Growth? Compound Growth Helps Employee-Owners Build Wealth The Key Ingredient is Time You’re Only Successful if Your Company is Successful This article has two big takeaways for employee owners. First, the most important factor in building wealth with employee ownership is giving compound growth plenty of time to work. Second, the better your company does, the faster your wealth will grow. Even small improvements in company performance add up to big changes thanks to compounding. Warren Buffet’s Journey to Twelve Figures Compound growth is simple to understand but can be difficult to appreciate. Imagine if I proposed the following deal: today you hand me a dollar, and a year from now I’ll come back and give you that dollar along with two dimes. Would you do it? If you’re like most people, that deal doesn’t sound exciting. But that deal, executed repeatedly and at scale, is how Warren Buffet became one of the richest people in the world. If you don’t know about the “Oracle of Omaha,” Warren Buffett is a legendary value investor with a net worth of roughly $108 billion. Buffett built his wealth as the majority owner of Berkshire Hathaway, a holding company that he took over in 1965. According to publicly available shareholder letters, over the next 50 years, Berkshire Hathaway’s stock grew at a compound growth rate of 21.6% a year. To put it another way, a single dollar invested alongside Buffett would have grown to $18,262 (source: Berkshire Hathaway Letters to Shareholders). That’s the power of compound growth. What Exactly is Compound Growth? In terms of investing, compound growth is when invested money earns returns on both the original amount as well any accumulated growth. Here’s a simple example. Say you invest $2,000 and earn a return of 10% per year. In the first year, you'll earn $200, bringing your total to $2,200. In the second year, you'll earn returns on the full $2,200, which comes out to $220. This includes $200 of growth from the initial $2,000 investment plus $20 from the $200 of growth from the first year. That $20, the growth made solely from prior growth, is your first bit of compounding. Compound growth means your money is growing at an accelerating rate. This effect starts small, but it becomes more and more powerful with time. Compound Growth Helps Employee-Owners Build Wealth Employee-owners tap into compound growth by owning shares of company stock. Their stock has a value determined by their company’s share price, which changes each year based on the value of the business. If the company’s share price goes up over multiple years, then the value of the stock grows with compound growth. While practices vary, most employee-owners receive an allocation of company stock each year paid for out of company profits. Annual allocations supercharge an employee-owners growth by building the account value in the early years while compound growth is still picking up steam. Building on the example above, say an employee-owner receives an allocation of $2,000 of stock at the end of each year and their company’s share price grows at 10% annually. Here’s how their account balance would grow initially: Our employee-owner sees $200 of share price growth in year 2 and their first compound growth in year 3. After 5 years of ownership, allocations add up to $10,000, over 80% of the total account value. In general allocations make up the bulk of an employee-owner’s account value early on, but that changes dramatically with time. The Key Ingredient is Time Let’s check in on that same employee-owner after compound growth has had time to work its magic. Let’s assume the allocations continue at $2,000 a year and the share price continues to grow at 10% annually: The first thing to notice is that our employee-owner’s total account value is accelerating. After 20 years they have over $110,000 in their account. After 25 years, they’re almost at $200,000. And after 30 years, they’re over $320,000! This acceleration is the tell-tale sign of compound growth. This example also shows how compound growth ends up driving most of the wealth building. Allocations continue, but they become less and less important as compound growth ramps up. By the end of their career, our employee-owner has accrued over 80% of their total account value from share price growth, exactly the reverse of what we saw after the first 5 years! You’re Only Successful if Your Company is Successful We started out talking about employee-owners becoming millionaires, but so far the highest account value we’ve shown is under $350k. This is where the share price growth rate factors in. After time as an owner, the next most important factor for employee-owners looking to build wealth is the success of their company. In general, the more successful a company is, the faster its share price will grow. To demonstrate the importance of company success, let’s look at how our employee-owner’s account value after 30 years changes with the rate of share price increase: For context, a 10% average annual share price is roughly what the public stock markets have returned over time. But it’s certainly possible for a successful private company to outperform this benchmark. Increased company success has a dramatic effect on our employee-owner’s account balance. Roughly speaking, a 1% annual increase in the company share price leads to changes in final account value of between $100,000 to $200,000. That’s huge! One very important caveat to all this is that no company’s share price is guaranteed to go up, and it’s possible that a series of events could lead to any company going bankrupt, which would make those company’s shares worth zero. For employee-owners, this risk is offset by the common practice that shares are paid for out of company profits, with the employee-owners not putting in any of their own money. And of course no financial gain comes without risk. What does it take for our employee-owner to become a millionaire? If their company is able to achieve a 20% rate of return over 30 years, they would retire with well over $2 million. Not every company will accomplish this, but it’s not without precedent. WinCo Foods managed to grow at roughly this rate from 1986 to 2014, a 28-year period. The minimum required performance for our employee-owner to see a seven-figure account balance is 16% annual share price growth over 30 years. Make no mistake, that is a solid performance that not every company can accomplish. But I personally have spoken to multiple employee-owned companies that have turned in this record, or better. Ultimately it comes down to how the company performs, which is something that every single employee-owner can impact through their ideas and their effort. Connecting the success of the company and the success of the employee through wealth building is perhaps the biggest reason we see employee ownership as a win-win for business and people. Note: The examples provided in this article are solely for illustrative purposes only and should not be relied upon in any way, nor should be construed as an appraisal, legal, financial, tax, or other professional advice. This article was originally posted on 3/10/23 and was updated on 7/11/23 to update the discussion of “compound interest” to “compound growth” which more accurately describes wealth building at stock-based employee-owned companies. What Exactly is Compound Interest? Compound Interest Helps Employee-Owners Build Wealth The Key Ingredient is Time You’re Only Successful if Your Company is Successful This article has two big takeaways for employee owners. First, the most important factor in building wealth with employee ownership is giving compound interest plenty of time to work. Second, the better your company does, the faster your wealth will grow. Even small improvements in company performance add up to big changes thanks to compounding. Warren Buffet’s Journey to Twelve Figures Compound interest is simple to understand but can be difficult to appreciate. Imagine if I proposed the following deal: today you hand me a dollar, and a year from now I’ll come back and give you that dollar along with two dimes. Would you do it? If you’re like most people, that deal doesn’t sound exciting. But that deal, executed repeatedly and at scale, is how Warren Buffet became one of the richest people in the world. If you don’t know about the “Oracle of Omaha,” Warren Buffett is a legendary value investor with a net worth of roughly $108 billion. Buffett built his wealth as the majority owner of Berkshire Hathaway, a holding company that he took over in 1965. According to publicly available shareholder letters, over the next 50 years, Berkshire Hathaway’s stock grew at a compound growth rate of 21.6% a year. To put it another way, a single dollar invested alongside Buffett would have grown to $18,262 (source: Berkshire Hathaway Letters to Shareholders). That’s the power of compound interest. What Exactly is Compound Interest? Compound interest is when invested money earns interest on both the original amount as well as the interest already earned. Here’s a simple example. Say you invest $2,000 at an interest rate of 10% per year. In the first year, you'll earn $200 in interest, bringing your total to $2,200. In the second year, you'll earn interest on the full $2,200, which comes out to $220. This includes $200 of growth from the initial $2,000 investment plus $20 from the $200 of growth from the first year. That $20, the growth made solely from prior growth, is your first bit of compound interest. Compound interest means your money is growing at an accelerating rate. This effect starts small, but it becomes more and more powerful with time. Compound Interest Helps Employee-Owners Build Wealth Employee-owners tap into compound interest by owning shares of company stock. Their stock has a value determined by their company’s share price, which changes each year based on the value of the business. If the company’s share price goes up over multiple years, then the value of the stock grows with compound interest. While practices vary, most employee-owners receive an allocation of company stock each year paid for out of company profits. Annual allocations supercharge an employee-owners growth by building the account value in the early years while compound interest is still picking up steam. Building on the example above, say an employee-owner receives an allocation of $2,000 of stock at the end of each year and their company’s share price grows at 10% annually. Here’s how their account balance would grow initially: Our employee-owner sees $200 of share price growth in year 2 and their first compound interest in year 3. After 5 years of ownership, allocations add up to $10,000, over 80% of the total account value. In general allocations make up the bulk of an employee-owner’s account value early on, but that changes dramatically with time. The Key Ingredient is Time Let’s check in on that same employee-owner after compound interest has had time to work its magic. Let’s assume the allocations continue at $2,000 a year and the share price continues to grow at 10% annually: The first thing to notice is that our employee-owner’s total account value is accelerating. After 20 years they have over $110,000 in their account. After 25 years, they’re almost at $200,000. And after 30 years, they’re over $320,000! This acceleration is the tell-tale sign of compound growth. This example also shows how compound interest ends up driving most of the wealth building. Allocations continue, but they become less and less important as compound interest ramps up. By the end of their career, our employee-owner has accrued over 80% of their total account value from share price growth, exactly the reverse of what we saw after the first 5 years! You’re Only Successful if Your Company is Successful We started out talking about employee-owners becoming millionaires, but so far the highest account value we’ve shown is under $350k. This is where the share price growth rate factors in. After time as an owner, the next most important factor for employee-owners looking to build wealth is the success of their company. In general, the more successful a company is, the faster its share price will grow. To demonstrate the importance of company success, let’s look at how our employee-owner’s account value after 30 years changes with the rate of share price increase: For context, a 10% average annual share price is roughly what the public stock markets have returned over time. But it’s certainly possible for a successful private company to outperform this benchmark. Increased company success has a dramatic effect on our employee-owner’s account balance. Roughly speaking, a 1% annual increase in the company share price leads to changes in final account value of between $100,000 to $200,000. That’s huge! One very important caveat to all this is that no company’s share price is guaranteed to go up, and it’s possible that a series of events could lead to any company going bankrupt, which would make those company’s shares worth zero. For employee-owners, this risk is offset by the common practice that shares are paid for out of company profits, with the employee-owners not putting in any of their own money. And of course no financial gain comes without risk. What does it take for our employee-owner to become a millionaire? If their company is able to achieve a 20% rate of return over 30 years, they would retire with well over $2 million. Not every company will accomplish this, but it’s not without precedent. WinCo Foods managed to grow at roughly this rate from 1986 to 2014, a 28-year period. The minimum required performance for our employee-owner to see a seven-figure account balance is 16% annual share price growth over 30 years. Make no mistake, that is a solid performance that not every company can accomplish. But I personally have spoken to multiple employee-owned companies that have turned in this record, or better. Ultimately it comes down to how the company performs, which is something that every single employee-owner can impact through their ideas and their effort. Connecting the success of the company and the success of the employee through wealth building is perhaps the biggest reason we see employee ownership as a win-win for business and people. Note: The examples provided in this article are solely for illustrative purposes only and should not be relied upon in any way, nor should be construed as an appraisal, legal, financial, tax, or other professional advice.
Read More ▶Three Inspiring Examples of Employee-Owners Building Life-Changing Wealth
January 20, 2023
There’s a lot to like about employee ownership. By changing the relationship between the company and employee, broad-based ownership creates alignment up and down a business. Engagement is stronger, people are more motivated, relationships are more durable, and companies are more successful. But of all the positive aspects of employee ownership, the most inspiring is how it can build life-changing wealth for employee-owners. Wealth building for working people ties the employee ownership community together. Every employee ownership structure, including Employee Stock Ownership Plans (ESOPs), Worker Cooperatives, Employee Ownership Trusts (EOTs), and Direct Share Ownership, builds broad-based wealth through some combination of capital accounts and profit sharing. It was the common thread in over 250 conversations about the meaning of employee ownership we had when we set our certification standards. And while there are decades of research in support of this model, it’s the individual stories of wealth-building that inspire people to join the employee ownership movement. In this article we will touch on three inspiring examples of employee-owners building life-changing wealth. We also consider the question of scale: are these examples cherries we have picked or would a wide-spread transition to employee ownership change millions of lives? WinCo Foods WinCo Foods was founded in 1967 by Ralph Ward and Bud Williams. The no-frills, warehouse-style grocery store focused on low prices soon grew from the original location into a small chain in the Pacific Northwest. In 1985, after the passing of Mr. Ward, the company transitioned to employee ownership. Several decades of success later, the company now has over 20,000 employee-owners across 135 stores in 10 states. Broad-based ownership translated WinCo’s growth into impressive wealth-building for employee-owners. In 2014, the 130 workers at a single store in Corvallis, Oregon had a combined $100 million in ownership wealth and across the company over 400 front-line employees were “millionaire grocery clerks”. According to the most recent Department of Labor 5500s, in 2020 WinCo’s employee-owners had a combined $3.6 billion in company stock. Cathy Burch’s story illustrates the impact of WinCo’s employee ownership. Cathy joined WinCo in 1991 and worked a number of front-line jobs such as stocking shelves, doing checkout, and ordering inventory. Over the years she received small allocations of company stock and benefited from compound interest as WinCo’s share price grew at roughly 20% a year. Ownership helped Cathy build a level of wealth and security that is unimaginable for most in her position. “I have almost $1 million in stock”, she said when interviewed for Forbes in 2014, “If I wanted to, I could retire right now.” Springfield Remanufacturing Company Springfield Remanufacturing Company (SRC) is another iconic example of employee ownership building broad-based wealth. Founded in 1983 as a distressed spin-out from International Harvester, SRC’s unique approach to open-book management was born of necessity. With an 89:1 debt to equity ratio and an interest rate of 18%, the new company had to find a way to get every single employee thinking about how to save every possible dollar. The laser focus created by approaching business as a team sport not only helped SRC pay off it’s initial loan and led to a leading opening-book management system known as The Great Game of Business, but it created a lasting culture that has continued to drive SRC’s growth. Today the company has 10 divisions with over 2,000 employee-owners. SRC’s approach to employee ownership rests on thinking like an owner but also benefiting like one. The company has been 100% employee-owned from the very beginning, allowing employees like Rick Hedden to own a piece of the action. The shares Rick earned over 36 years as an employee-owner allowed him to retire early at 59 to focus on his hobbies and his family. “I wanted to be able to retire while I was healthy and I could afford it,” Rick said when interviewed for an article on the Great Game of Business Blog, “my wife and I are also enjoying having more time with each other without any pressure or timelines.” Rick is not alone. Employee ownership has helped transform SRC from a struggling spinout with a share price of 10 cents into a thriving conglomerate with a share price of over 420 dollars. Along the way, SRC has paid out over $100 million to retiring employee-owners and created 30 millionaires. New Belgium Brewing New Belgium Brewing offers a different perspective on how employee ownership can help build life-changing wealth. Founded in 1991, the Colorado-based brewer helped popularize craft beer with it’s flagship Fat Tire Ale. New Belgium transitioned part of the business to employee ownership in 2000 and then went to 100% in 2013. Unlike WinCo and SRC, New Belgium is no longer employee-owned. The company was sold to Little Lion World Beverages in 2019. How can a company that’s no longer employee-owned be an inspiring story? In an interview with Forbes, Katie Wallace, the Director of Social and Environmental Impact, shared, “ultimately, the sale was a great success story for employee ownership in that more than 300 New Belgium coworkers will receive more than $100,000 in retirement money, with some coworkers receiving quite a bit more. Over $190 million will have been paid out to hundreds of families by the time the deal closes. This is money that founders of a more traditional business could have easily pocketed themselves, so it’s an excellent win for wealth equality.” New Belgium shows that employee ownership not only creates tremendous upside, but it also creates downside protection in the case of a sale. While it’s bittersweet to see a company transition out of employee ownership, sales are a fact of business ownership and there will always be times where the best outcome for the owners is to sell. In the case of New Belgium, the sale was put in front of the employee-owners and a majority voted in favor of the deal. Does Employee Ownership Scale? WinCo, SRC, and New Belgium show how employee ownership helps workers share in the value they create and access that value in the case of a sale. But perhaps these three exceptional companies are not representative of the broader employee ownership experience. To understand the economy-wide impact of a transition to employee ownership, Certified EO teamed up with Professor Ethan Rouen at Harvard Business School to answer a simple question: what would happen if every company in America employee-owned? Analyzing data from the Federal Reserve, we demonstrated that an employee-owned economy would be an absolute game-changer. Median household wealth would rise from $121,760 to $230,076 and wealth inequality would drop to historic lows. Our analysis shows that the inspiring stories we highlighted are certainly great outcomes, but if every company in America were employee-owned, they would be common. Today these stories are a light that can guide us as we seek to change more lives through employee ownership.
Read More ▶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.
Read More ▶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.
Read More ▶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.
Read More ▶How Exits Impact Employee-Owners: an Interview With Michelle Waterhouse of Hopkins Printing
August 11, 2022
The common thread that connects all corners of the employee ownership community is wealth building for working people. Broad-based ownership gives every employee the opportunity to earn the benefits of business ownership, namely access to profit sharing and shares of company stock. Shares in particular represent a major opportunity because they can grow exponentially through compounding. To utilize the wealth they have built, employee-owners must eventually turn their shares into cash. That typically happens in one of two ways. At companies that are operating as employee-owned in perpetuity, the company will buy shares back from employees when they leave or retire. But if an employee-owned company ever decides to sell, employee shares are purchased as part of the acquisition. While the sale means one less employee-owned business, it also means access to potentially life-changing wealth for the employee-owners. To highlight the dynamics involved in the sale of an employee-owned business, we connected with Michelle Waterhouse, the HR Director of Hopkins Printing, an employee-owned company that was sold January 31, 2022 after nearly 15 years as an ESOP. TD: Thank you for taking the time to share your story with us. Why don’t we start with a bit of background on the company.MW: Hopkins Printing started in the garage of Jim and Arnie Hopkins in the mid 1970’s. They opened a copy center in downtown Columbus and then moved into color printing in the 80’s. From there they grew to their current location with a 100,000 square foot facility, operating 3 shifts with 100 employees. TD: How & when did you get involved in the company?MW: My parents are Jim and Arnie Hopkins, so I have worked at the company since I was a teenager. After graduating college in 1990, I took an office role. As our employee count kept growing, I moved more into an HR role. I also brought back a new husband from college, Roy Waterhouse. He and my dad got along well and he has been here 32 years as well. Roy was the president and CEO before the sale, focusing on sales and marketing.TD: And when did you first consider employee ownership? MW: In 2007 we had entered into an LOI with a publicly traded printing company. We soon figured out that it would not be a good fit for our employees. My father Jim had already heard of ESOPs and saw it as a way to reward the employees who had helped build the company from the early days. So we reached out to a well-known ESOP attorney here in Columbus to learn more about what it would mean for our company and our employees. TD: How did becoming employee-owned impact your business?MW: Looking back, I would say the most notable impact was employee retention. Employees realized that they had skin in the game here. This was a stock that they owned and they could help impact the share price every year. Low turnover is very good for a business in terms of employee knowledge and the cost of training new employees. TD: When did you first start thinking about a sale?MW: We were approached in May of 2021 by a company that owns another very large printing company in the United States because they wanted to get into the type of commercial work that Hopkins Printing does. Our first concern was: what will this mean for our employees? We asked to see their employee handbook and their benefit package. I’m sure this was different than any other merger in their history because we wanted to talk about employees before we talked about money. We were pleasantly surprised that their handbook was very similar to ours and they provided more PTO than we did. And their benefits were much better than we were able to provide for our employees. After we learned these two things, we started moving forward with the process. TD: What was the consideration process like?MW: It was a good process. We spent 5 months working out the details with the new company before we announced anything to the employees. Both sides spent those 5 months exchanging information to make sure it was going to be a good fit. Our ESOP Trustee and ESOP attorneys helped bridge the gap and helped us navigate all the considerations needed to sell an ESOP company. In November we called an all-employee meeting on a Tuesday afternoon. Our president explained to everyone about the call he received in May and he also explained a little about the company that was buying us and what they were looking for. Our founder, who was 81 at the time, told the employees why he thought it was a good idea. He explained how it’s hard to be a small business right now with everyone trying to recover from the impact of the pandemic, all of the regulations, rising health care costs, and so on. He explained that the next generation of leadership is in their 50’s and will be able to continue and help make it a smooth transition. As HR Director, I shared that the new company’s CEO told us that all employees would keep their jobs and that I had been tasked with hiring 25 additional employees to help with the increased work they planned on sending to our plant. I also explained the main perks of their benefit package. Our COO then explained what it would mean for their ESOP accounts and that they would all have a vote in this transaction. If they all decided that they didn’t want to sell the company, we would continue being an ESOP and being in business together doing great things. If we did sell the company, all shareholders would receive 95% of their share value around 90 days after the transaction closed at a premium over our most recent share price that was calculated as of 12/31/2020. We then handed every employee a 16 page document that detailed the financial aspects of the sale and their ESOP accounts. All shareholders had one week to research the new company and ask us any questions. We then had a follow up meeting with all employees and our Trustee to answer any questions. They all then had one week to send their vote to our Trustee. We have 30,000 shares and the vote was 29,922 yes and 78 no. TD: How has the sale impacted your people and your company? MW: Many employees owned stock worth hundreds of thousands of dollars. Our concern was that they would get their money and quit their jobs, so we spent the next few months coaching about saving, investing, tax penalties for taking it out early, etc. We brought in our 401k advisor as an option for employees to be able to talk with someone they have known for years. Everyone was finding financial advisors and planning for this large influx of money. Shareholders received 95% of their account value as a distribution in mid-May. They will receive the remaining amount due after the company has closed out all financial issues and collects the 5% holdback from the sale. We were very happy that no one quit their job! Most everyone saw it as an opportunity to set their retirement up and transferred the money to another retirement vehicle to avoid taxes and penalties. Some of our employees had debts that had been hanging over their heads for years, or wanted to pay off credit cards, their car, or their house. Those employees took out some of the money to set themselves up better financially in the present, and then moved the rest aside for a more comfortable retirement. Because we were such a strong company here in our city, the new company kept our name, so we are still Hopkins Printing. They have been sending us work for our plant and their benefits have been amazing. In addition, their support with HR, IT, production, supplies, and safety, to name a few, has been a big help to us as a small company. It’s fun being part of a growing, large company. The key to this sale was that we didn’t need to sell and we took the time to make sure it was win-win-win. It really did work out well for our ESOP, for the new company, and for everyone’s future. The above questions and answers were exchanged via email in July 2022. Some answers have been edited for clarity and brevity.
Read More ▶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 are 33.2 million American businesses in 2023, 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.
Read More ▶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.
Read More ▶Capital Accounts and Profit Sharing: The Two Ways Employee-Owners Build Wealth
April 27, 2022
Employee-owned companies can build life-changing 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. A 2018 study of S Corporation ESOPs found that employee-owners have nearly double the average retirement wealth of non-employee-owners ($170,326 versus $80,339). In 2021 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 by over $100,000.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 AccountsCapital accounts are distinct accounts hold company stock directly or derivatives such as stock options on behalf of individual employees. Employee Stock Ownership Plans (ESOPs), Employee Stock Purchase Plans (ESPPs), and stock options are all forms of capital accounts. Capital accounts are typically funded through an initial grant or annual contributions. Funding might come from the company, as with an ESOP, or from the employee-owner, as with an ESPP. Today there are over 5,800 employee-owned companies using capital accounts. Capital accounts benefit from compound growth.The value of the stock or derivative in a 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, which creates compound growth.Compound growth is how employee-owners can build life-changing wealth. Specifics vary, 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 potential, the key ingredient is time. Drawing the account down will erase the compounding. Building substantial wealth typically requires the capital account is untouched for 20 years or more. Eventually employee-owners must turn their 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 have enough cash on hand to buy back all outstanding shares. 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. This is a time-tested practice that can continue for a long time if both the employee ownership plan and the company are managed well. Profit SharingProfit sharing is when a company regularly distributes some portion of profits back to employees as cash. 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 can be implemented in a variety of ways, but not all forms of profit sharing are 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. 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 broad-based. Profit-sharing benefit plans that own shares of company stock can meet these criteria, but in our experience these plans rarely own enough of the company for it to meet the definition of employee-owned. Currently we see just two types of employee-owned companies where the primary wealth building mechanism is profit sharing: Worker Cooperatives and Employee Ownership Trusts (EOTs). We know of roughly 400 companies operating through these two vehicles today.Tradeoffs Between Capital Accounts and Profit SharingThe structure of capital accounts and profit sharing leads to a fundamental tradeoff between wealth building and liquidity. Wealth BuildingThrough compounding, 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 (explore scenarios here). 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 sooner, and money today is more useful than money later. Most capital account structures at employee-owned companies own illiquid private-company stock, so employee-owners have limited withdrawal options. 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, waiting might not be an option. While profit sharing builds less total wealth, it provides greater liquidity and that tradeoff might be worth it for some people, especially those making a lower income. Investing in GrowthThe differences between profit sharing and capital accounts have implications for how a company invests in growth. Capital accounts are fundamentally long-term and therefore can be much better for alignment. Theoretically, profit sharing can disincentivize investing in the business, since investments reduce profit now in exchange for profit later. For example, buying an expensive piece of equipment that would increase profitability multiple years in the future. If employee-owners have a strong need for money now, will they still make that investment?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 are owned 100% by an EOT or Worker Cooperative.There is a major exception: discretionary profit sharing. While not actually 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 with capital accounts implement 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.This article was originally posted 4/27/22 and was updated on 5/9/2023. 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. -----------------After publication, Christopher Mackin of Ownership Associates sent a thoughtful reply detailing a notable example of a non-US company that uses both profit sharing and capital accounts, as well as a template for implementing a dual structure. With permission, I am including the content of the message here for interested readers."Your statement that worker cooperatives and EOT's are where profit sharing employee ownership models reside is a bit problematic. You are factually correct about EOT's and most American worker cooperatives. But it is also the case that perhaps the most prominent single example of what you are calling Capital Accounts is in the Mondragon worker cooperative system of - yes - internal capital accounts. David Ellerman and the rest of us at the Industrial Cooperative Association worked hard in the 1970's and 1980's to develop model by laws for worker cooperatives (pps.16-20) that specify how to establish that internal capital account model which David thought through independently of Mondragon. When we traveled there in the late 1970's we were amazed to find a real world example of scale that made use of the very same ideas - a membership share of stock the price of which was set and adjusted only for inflation separated from individual internal capital accounts into which annual profits were contributed and losses deducted. These same accounts obviously also compound wealth.It is my guess that only a small percentage (say 10%?) of American worker cooperatives make use of the internal capital account system used in Mondragon. That is or will become a problem for them when the pressure to pay out cash is perceived to be a zero-sum decision on the part of members (cash for persons or undifferentiated investment in the cooperative). The internal capital account system breaks through that problem and does so in a way that is actually superior in my mind to the ESOP structure which has the benefit of capital accounts but the pressure to value those accounts using net present value methodologies."
Read More ▶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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