ESOPs can promote workplace democracy
Companies may embrace democratic practices after moving to employee ownership
Tuesday January 6, 2009 -- Jennifer Higgs
Loren Rodgers, project director at U.S.-based The National Center for Employee Ownership, says one of the reasons he got into the field was the hope that companies with employee stock ownership plans (ESOPs) run democratically.

Though it’s more complicated than he originally thought, Rodgers says democratic workplaces and ESOPs naturally go hand in hand.

“Companies that are ESOPs are more likely to become democratic, and companies that are democratic are more likely to become ESOPs and they sort of reinforce each other. It’s definitely not the case that being an ESOP necessarily changes in any way the way a company operates, but it tends to,” he says.

Most companies choose to become an ESOP because the owner is close to retirement and would rather sell to employees than a competitor or liquidate the company.

“There’s this completely unquantifiable thing that owners just feel better selling their shares to employees than selling to anyone else,” says Rodgers.

ESOP companies do not have to change their culture and “a fair number of them don’t,” says Rodgers.

Companies may treat an ESOP as a retirement plan and nothing more. However, companies that only intend the ESOP to be a retirement benefit may gradually catch onto the idea of changing their culture to be more democratic. This shift might come about when the crew or mangers change, when there’s new personnel, when people have their ideas changed or when they attend a conference and learn about other companies.

“I think they almost get infected sometimes,” he says.

Rodgers says it’s hard for people to be good citizens in this society if they live in an economic dictatorship.

“I think if we’re automatons in the workplace it’s hard for us to switch gears and suddenly be engaged, active, critical thinking citizens and it gets complicated,” he says.

“ESOPs are a great opportunity, it facilitates companies doing things that they already want to do” and are looking for how to do it, he says. “It gives companies an opportunity to change in ways that that they didn’t anticipate they would want to change.”

Though it’s hard to quantify, companies that implement employee ownership often increase its employee satisfaction rates and have lower turnover than non-ESOP companies.

“A lot of them do try to act employee-owned in at least some way, so I think that makes life a lot more rewarding for employees,” he says.

ESOP companies are more stable and go bankrupt or are purchased by outsiders 20 per cent less often than non-ESOPs. On average, ESOP companies are more productive and have more profitable growth, notes Rodgers. There are also tax breaks.

ESOP companies tend to give more assets to their employees and are more likely to have other retirement plans. The average ESOP participant has 2.5 times more company-related assets than a non-ESOP company.

Learn more about ESOPs by visiting www.nceo.org.

If you have feedback on this article, please contact jennifer(at)axiomnews.ca or 800-294-0051.