Two New Jersey professors leading the call for expanding Employee Stock Ownership Plans, and studying their benefits thus far, have helped analyze a federal bill that would make it easier for retiring owners to sell their businesses to employees.
Joseph Blasi and Douglas Kruse, both distinguished professors at the Rutgers University School of Management and Labor Relations, weighed in on the drafting of the Main Street Employee Ownership Act, which passed the House of Representatives on May 1 and was introduced in the U.S. Senate last week, co-sponsored by, among others, Sen. Cory Booker (D-N.J.).
The two have followed the retirement strategy for employers for some time, and spoke with ROI-NJ last year when Rutgers announced the New Jersey/New York Center for Employee Ownership.
Based on 2014 figures, the latest analyzed by the Center, 115 closely-held ESOP companies in N.J. have a total of 56,846 workers and $11.5 billion in total plan assets, an average of just under $203,000 per worker.
The total per worker is greater than the national average of $134,000 per worker.
This is because many of New Jersey’s ESOPs are in the manufacturing, finance, insurance and professional service industries — so their market value is greater.
Both Blasi and Kruse analyzed 40 years of U.S. Department of Labor filings — from 1974 to 2014 — and found that most of the 6,000 businesses that sold to employees were family businesses, and workers who stayed with the company at least 20 years had higher wealth buildup.
The average worker had $134,000 from stock, and the companies overall were valued at $7 billion, and employed about 2 million people in 2014.
“One of our most remarkable findings is that employee ownership companies had only half the layoffs of otherwise-similar companies in the last two recessions,” Kruse said. “This means that employee ownership may help to stabilize communities and the larger economy by maintaining employment and consumer purchasing power.”
These are important facts to keep in mind as Congress weighs the benefits of advancing the bill, which could help a number of Main Street or small businesses around the country.
“The Main Street Employee Ownership Act will significantly expand the number of middle class citizens who have a shot at a meaningful financial ownership stake in the company where they work through an ESOP or a worker cooperative,” Blasi said. “It will improve the ability of the Small Business Administration to be a full partner in developing employee share ownership in the economy through lending and technical assistance to facilitate the sale to the employees.”
And, although Congress is weighing the benefits of this bill for the so-called “silver tsunami” or the large population of aging Americans who will soon be retiring, how the bill affects future generations remains a question.
Especially since the benefits of the strategy benefit workers that stay with a company the longest — the opposite of the trend occurring in the millennial workforce.
Professor James Terez, associate director of the New Jersey/New York Center for Employee Ownership, said it’s up to employers.
“The future is challenging to predict,” he said. “On the one hand, you have the social trend that younger employees tend to move more frequently from company to company. On the other hand, you have the observation that ESOP companies can demonstrate relatively lower turnover over time. If an organization offers a compelling value proposition, employees will more likely tend to stay. An ESOP can add substantially to that value proposition.”
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- ESOPs may be smartest (and safest) succession strategy for boomers
