Former US Senator from NH Speaks Out for Employee Ownership
President Donald Trump's push for corporate tax reform will help America's businesses compete and win. Yet, while business leaders are championing reform, their employees may perceive it as a boon to big businesses, making passage more difficult.
The divide between business and workers has plagued policy solutions in recent years, but that divide has not always seemed insurmountable.
Americans were once proud of our businesses. We loved building, buying, producing, and selling. But today, stagnant wage growth and the decline of legacy industries has erased much of this pride. Last year, the only institution Americans had less confidence in than big business was Congress. Among all employees, less than one-third are engaged at work.
Fortunately, we can restore our pride in our businesses through tax reform that encourages private companies to turn their employees into owners. Ownership in a business gives workers a physical stake in their company, allowing them to benefit directly from their own efforts, and particularly from improvements in competitiveness and performance. Ownership is not profit-sharing or bonuses. It's a true stake in success, and employee stock ownership plans (ESOPs) stand out as a unique model that deliver benefits for both businesses and employees.
And with an ESOP, what's great for business is great for employee owners' job and retirement security. ESOPs provide workers with savings through ownership of company stock. A qualified, defined, contribution employee benefit established in 1974 and expanded to S corporations in the late 1990s, this business model is driving growth for nearly 7,000 companies, boosting the wealth of roughly 14 million employee owners. Rutgers economist Douglas Kruse demonstrated the power of ownership in his research that finds productivity jumps by four to five percent the first year an ESOP is adopted.
"While business leaders are championing reform, their employees may perceive it as a boon to big businesses, making passage more difficult."
A recent study of company performance over the last decade found that, among one type of ESOP, the S corporation ESOP (S ESOP), in continuous operation, jobs grew an astonishing 37 percent, while jobs in the private economy grew only eight percent overall. This strength is even more pronounced in sectors facing declining employment levels such as manufacturing, where S ESOPs have held employment steady since 2000 and through the crisis.
Today, nearly half of U.S. workers have no access to any form of employer-sponsored retirement savings plans, according to the Bureau of Labor Statistics. Meanwhile, all employee owners have access to a retirement plan and for S ESOPs, employee owners are likely more likely to have a second retirement vehicle than non-employee owners are to have one. And the savings aren't chump change. For S ESOP employee owners nearing retirement, they have accumulated savings that are on average five to seven times what they would have in a typical 401(k).
Not only do ESOPs address workers' economic anxieties with increased job and retirement security, they also tackle a core social issue—income inequality. The "democratization of capital" occurs in few other places in our economy, but can be a powerful tool to address inequality.
For policymakers, ESOPs are an underutilized tool to meet the goals of our economy: growth, more jobs, financial security, and income parity. But for tax reformers looking to stop the outflow of jobs moving overseas, employee ownership also delivers by providing an exit strategy that keeps business ownership local.
Take Burns & McDonnell, a Kansas City, Missouri -based engineering and architecture consulting firm. In 1985, Burns & McDonnell was owned by a financially troubled European steel company. The parent company was planning to sell it to a German firm until the Burns & McDonnell management team used the ESOP model to buy the company themselves.
Over 30 years later, Burns & McDonnell has 5,100 workers – up from 1,600 when the company converted to an S ESOP – who collectively own 100 percent of the company. And notably, the company's largest shareholders aren't members of the management team but middle class employees.
We can replicate this success story, but the market won't act on its own. Through tax reform and other efforts, we can support incentives for converting businesses to employee-owned and replicate state centers at the federal level to educate companies on the benefits of employee ownership. More awareness and incentives can turn America's disengaged and frustrated workforce into motivated and excited owners.
As President Trump seeks to unlock the potential for American businesses to grow, we need Americans to believe they will share in that prosperity. Creating jobs, increasing productivity, and promoting retirement security: ESOPs just might be enough to make Americans fall in love with business all over again.
Commentary by John E. Sununu, who served as a Republican Senator from New Hampshire from 2003-2009, and in the U.S. House of Representatives from 1997-2003. Follow him on Twitter @ JohnSununu.