Employee Ownership

Date: 9 Mar 2008 | posted in: equity | 0 Facebooktwitterredditmail

Like community-owned sports teams, cooperatives and employee stock ownership plans are organizational models that tend to root businesses in their communities. Both ESOPs and coops are powerful tools that give decision making authority to those who will feel the impact of the decisions they make. When authority and responsibility are linked, decisions will likely be made in the best interests of the local community.

A cooperative is a business owned and controlled by the people who use its services. It is operated for them on a cost basis, meaning that the co-op is not designed to maximize profits, but rather to provide goods and services at a reasonable price. In most cooperatives and credit unions, each member has one vote in the decisionmaking process regardless of the number of shares owned or the amount of business done in the co-op. Examples of cooperative businesses are: farm supply, financial, purchasing, health, consumer, day care, housing, insurance and many other types of businesses. There are over 70 million people that belong to some form of cooperative in the United States, according to the Kansas Cooperative Council.

Employee Stock Ownership Plans (ESOPs) have been around since the 1940s, but they became economically attractive to employers only after 1974, when Congress liberalized the rules regarding them. These allowed for significant tax incentives for stock given to employees. In 1974 there were 200 ESOPs in the U.S. By 1998 this had grown to 10,000, covering about one in every ten American workers. About 1,500 ESOP companies are majority owned by the employees. Several studies have found that when employees have significant ownership and participation in a company, profits, sales and productivity improves.

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