About Employee Ownership (EO)

Employee Ownership (EO)

Employee ownership is when an employee has an ownership stake in the company for which they work - by owning company stock or holding stock options, for example. Employee ownership is a common-sense, widespread practice that benefits businesses and employees.

Employee-Owned Companies

For a company to be employee-owned, it takes more than having just some employee ownership.

A company is said to be employee-owned when its employees have a significant and broad-based ownership stake. Significant means that employees own at least 30% of the business. Broad-based means that meaningful access to ownership is open to every employee and that concentration of ownership is limited.

Many brands you know and love are employee-owned, although you might not know it! A few examples are listed below.

  • Mountain HardwareMountain Hardware & Sports
  • Harrell RemodelingHarrell Remodeling
  • Salem DistributingSalem Distributing
  • LifetouchLifetouch

Fast Facts

Employee-owned companies operate in every industry in the economy and every state in America. They range in size from just a few to more than 180,000 employees and in revenue from less than $1 million to more than $20 billion.

5,000
Number of companies
1,500,000
Number of employee-owners
>$200B
Combined Revenue

Benefits

There’s a lot to like. Employee-owned companies have been shown to be more productive than regular companies. They get competitive advantages from having highly engaged employees and low turnover. Employee-owned companies also provide a number of benefits to their employees, their customers, and their local community. Last but not least, employee-owned companies make the American economy more productive and spur economic growth.

Fair compensation

Employees receive fair compensation and benefit from a stable, secure job. When the company does well, they do well.

High quality

Customers benefit from high-quality products and employees who place a high-emphasis on customer service. Imagine a business where everyone you deal with thinks and acts like an owner.

Local jobs

Communities benefit from businesses with strong local roots. Employee-owned companies provide stable jobs that will not be outsourced. Profits made by EO companies are re-invested in the local economy.

Engagement, Governance, and Culture

While significant and broad-based ownership is the hallmark of EO companies, many complement their ownership with:

  • Employee engagement practices such as open book management, self-directed teams, and employee input on strategic goals

  • Employee governance such as voting for members of the board (on a per-share or even per-person basis)

  • Ownership culture that ensures all employees think and act like owners

Common Types of Employee-Owned Companies

Employee-owned companies are organized in a number of different ways:

  • Employee Stock Ownership Plan

    Employee stock ownership plan (ESOP) companies are the most common type of employee-owned company in America.

  • Worker Cooperative

    Worker cooperatives combine employee ownership with employee governance.

  • Perpetual Trust

    Perpetual trusts are a new form of employee ownership in the US based on the UK’s John Lewis Partnership.

  • Direct Share Ownership

    Direct share ownership (DSO) companies are the most flexible type of employee-owned company.

While these companies differ in key ways, they all have significant and broad-based employee ownership.

FAQ

Q. What is employee ownership (EO)?

Employee ownership is when employees have an ownership stake in their company. Employee ownership includes employees holding shares of stock, stock options, restricted stock units (RSUs), stock appreciation rights, or anything else that gives them a legal claim on residual profits.

Nearly every company in America has some employee ownership - that is to say there is at least one employee that has some ownership stake in the business. Employee ownership can vary dramatically across companies. Sometimes a small number of employees have a large ownership stake - this would include a founder/CEO who owns 100% of her business or a group of executives who have lucrative stock options. Or every employee could have some ownership, but all together employees could own just a small piece of the business - such as employees of a large public company who receive stock options.

Q. What is an employee-owned company?

While nearly every company has some employee ownership, very few companies can truly be called "employee-owned." That’s because there is more to being an employee-owned company than having just some employee ownership.

A company is said to be employee-owned when its employees have a significant and broad-based ownership stake. Significant means that employees own at least 30% of the business. Broad-based means that meaningful access to ownership is open to every employee and that concentration of ownership is limited.

Companies can be employee-owned in a number of ways. They can use an employee stock ownership plan, a perpetual trust, direct share ownership, or become a worker cooperative.

Q. Why do companies become employee-owned?

Every employee-owned company has its own story. While some companies are employee-owned from day one, most become employee-owned through an employee ownership conversion.

The most common conversion story involves a business owner who is looking to retire but doesn’t have a succession plan in place. She wants to exit but isn't sure what to do. Maybe she doesn't have kids or her kids aren’t interested in taking over. She could sell to a competitor or private equity, but that could mean some uncomfortable changes to the company.

So this owner thinks about selling the business to her employees. An employee ownership conversion offers many advantages. The business owner gets to exit on her own timeline while ensuring her legacy will be preserved. At the same time, the employees who helped build the business are rewarded through equity ownership.

Some companies are employee-owned from the get-go. These companies tend to be started by groups with a strong passion for employee ownership.

Q. How common is employee ownership?

Employee ownership is very common, but employee-owned companies are relatively rare. As best we can tell, there are between 4,000 and 5,000 employee-owned companies in the U.S. This represents less than 0.2% of U.S. businesses with at least five employees.

Ultimately it’s hard to know exactly how many employee-owned companies there are today. Ownership structures are complicated and most, if not all, employee-owned businesses are private so they do not have to publicly report ownership information. The difficultly of determining if a company is or is not employee-owned is one of the reasons Certified EO was created.

Q. Are there any publicly-traded employee-owned companies?

Not that we know of. While there is nothing that prevents publicly-traded companies from being employee-owned, publicly-traded companies tend to be very large and it is rare that employees own enough of the company for it to be considered a significant ownership stake. There could be a few publicly-traded employee-owned companies out there that we have missed. We are looking, and it is something we hope to see more of in the future.

Q. What is an ESOP?

Employee stock ownership plans (ESOPs) are the most common vehicle of employee ownership in America. They are retirement plans that allow employees to be granted shares of company stock in individual accounts. ESOPs were created in the early 1970s with the passage of the Employee Retirement Income Security Act of 1974 (ERISA) and are recognized as "qualified defined-contribution employee benefit" plans. They experienced rapid growth in the 1980s and 1990s.

As of 2013 there were roughly 6,800 ESOPs with upwards of 10 million participants. While most employee-owned companies have an ESOP, not all companies with ESOPs are employee-owned. Many public companies have ESOPs as part of their retirement benefits, but do not have significant employee ownership. These account for the bulk of active participants in ESOPs. In 2013 private companies with ESOPs numbered 6,200 but had just 2.2 million active participants.

Q. What is a worker cooperative?

A worker cooperative is a special type of employee-owned company. What differentiates a worker cooperative is that workers participate directly in the governance of the company on a one-person/one-vote basis. This doesn’t necessarily mean that all decisions within the workplace are made by committee. At a minimum it means that workers elect some or all of the board of directors on a one-person/one-vote basis. Voting based on people, not shares, is why worker cooperatives are often referred to under the banner of economic or workplace democracy.

In the U.S. there are only 300–400 worker cooperatives and they employ less than 10,000 people. Despite their small number, worker cooperatives have high visibility and a passionate group of advocates. There are a number of notable clusters of worker cooperatives in countries such as Spain, Italy, Israel, and Argentina.