“I’ve been working on them for over 40 years and only now have ESOPs become cool”


Yesterday I published a story at The Intercept taking a close look at Employee Stock Ownership Plans, or ESOPs, and why they might be a policy idea you’ll hear a lot more about in the next few years. The quick-and-incomplete summary is that they’re a very specific kind of retirement vehicle that involves giving shares of a company to the employees of said company, allowing workers to enjoy some of the company’s capital earnings on top of their wages.

ESOPs have been around since the mid 1970s, but due to a few reasons I explore in the piece, they largely fell out of political favor. Now “employee ownership” advocates (which also includes co-opt advocates) have set a goal to get 50 million workers employed in employee-owned businesses by 2050. There are currently about 7,000 companies today with ESOPs, and more than 14 million current and former private sector workers have participated in them.

ESOPs have long been a bipartisan idea — drawing liberal and conservative support for different reasons.

The idea was originally promoted by a guy named Louis Kelso, a San Francisco lawyer who, in 1956, helped save a local newspaper by allowing employees to buy stock in the company. He later boosted the ESOP idea as a way to “save capitalism.” Conservatives over the years—including Richard Nixon and Ronald Reagan—have been drawn to the idea of expanding the pool of capitalists through employee ownership. Supporters say such ideas also trace long roots in American history, noting the Founding Fathers also worked to expand land ownership as a means to promote greater economic equality. Early industrialists like John D. Rockefeller Jr. of Standard Oil also backed broad-based profit sharing, and in contemporary times, conservative intellectuals have defended employee ownership on the grounds that it’s most certainly not socialism.

Liberals on the other hand have been drawn to ESOPs as a way to strengthen worker power, increase corporate transparency and job security, transfer wealth to the middle class, and reduce economic inequality (a study released last year found the average worker in an ESOP had accumulated $134,000 in retirement wealth from their stake.) A company with an ESOP can be unionized, but most aren’t. Give that they blur the lines between workers and owners, unions have had a complicated relationship with them over the years.

In the piece I also report on a new study by a Danish researcher that looks at the impact ESOPs have on wages using a longitudinal data set. Almost all ESOP studies to date have used administrative and cross-sectional data, so using this kind of longitudinal data is a relatively big deal for people who study employee ownership.

Senators Bernie Sanders and Kirsten Gillibrand—both likely 2020 presidential contenders—are ESOP and co-opt boosters and have sponsored legislation in the past two years to promote them. One reason employee ownership is gaining more traction is because an estimated 2.3 million businesses in the United States are owned by baby boomers who are approaching retirement, and these companies employ almost 25 million Americans. While many of these business owners will fold quietly or sell their companies to competitors or private equity firms, ESOPs present retiring business owners with an alternative to sell their company to their workers and perhaps keep jobs more securely within the local community.

You can read the ESOP story here.

(For those who like pieces like this, over the past year I’ve had the opportunity to highlight other economic policy ideas that warrant closer attention: community-development credit unions, a national social wealth fund, and Modern Monetary Theory.)