Economic Performance | The ESOP Association Blog

March 5, 2013 • 12:13 pm 0

Employee Ownership Foundation: Making the Case

The following originally ran as the Washington Report column in the February 2013 issue of the ESOP Report, the newsletter of The ESOP Association.

When the leadership of the Association authorized the creation of the Employee Ownership Foundation in the mid-90s, a primary goal was to develop macro, untainted evidence of the goodness of our national policy to encourage more employee ownership through the ESOP model.

Clearly it took some years to build up a pot of money, or endowment to use the formal term, and then some years for the spending of that money to have tangible results that the Association could wave around and say, “See what the Foundation can do for you and your ESOP company in saving positive ESOP laws!”

From day one of the Foundation, before it had even a little bit of extra money, the Foundation has supported questions on what is known as the General Social Survey (GSS), which is conducted every four years by an affiliate of the University of Chicago that deals with “shared capitalism.” These shared capitalism questions number only a few in the multi-million dollar GSS Survey. These questions are funded with $100,000 from the Foundation. [To explain the shared capitalism term, it was developed by leading ESOP academics at Rutgers University School of Management and Labor Relations to explore what average pay employees were experiencing in terms of job security, wealth, and work place views in companies with ESOPs, 401(k)s with company stock, cash profit sharing, broad based stock options, and worker owned co-operatives. Clearly, in terms of employee ownership, the ESOP model is the most dominant of these models of average pay employees sharing in the capitalist structure of their employers.]

By having these top researchers at Rutgers, Drs. Joseph Blasi and Douglas Kruse, often in collaboration with Dr. Richard Freeman of Harvard University and the National Bureau of Economic Research, develop the questions on shared capitalism once every four years, analyze the responses, and cross tab those responses to other data from the survey, no one can say that the results were “cooked” up by a group promoting ESOPs and employee ownership.

And what has come from the results of the 2010 GSS is golden as the ESOP community can go to Congressional decision makers and say, “Maintain positive ESOP laws; stop negative agency actions against ESOPs!”

As reported, the 2010 GSS evidences that employee stock owned companies laid off employees during the Great Recession at a rate of less than 3%, whereas conventionally-owned companies laid off employees at a rate over 12% — a four to one ratio.

We, the Association circulated this data to the press and to members of Congress.

But, then we realized that most of the talk in DC was about the Federal debt, along with reforming the tax code to get rid of tax “loopholes” — let us assure you that many Federal officials and financial experts consider all positive ESOP tax laws to be undeserved tax loopholes.

So, we got to thinking with our counterparts at the National Center for Employee Ownership, or NCEO, that when people have jobs, they pay taxes, income, FICA, Medicare, and do not take checks from the Federal government.

So, how much money did the wonderful layoff record of employee stock owned companies save Uncle Sam during a typical year of the Great Recession?

Crunching numbers, primarily by former NCEO Executive Director Corey Rosen, with review by current Director Loren Rogers, and some comments from Dr. Kruse, it was estimated that for every $1 ESOP companies benefited from special ESOP tax laws, Uncle Sam took in, in taxes, nearly $7.

So, when the tax committees decide what tax loopholes to close to save Federal money, we will say, “You want to save money, keep the ESOP laws as they are; and if you are wise, pass laws to encourage more ESOPs.”

No question, the most powerful lobbying tactic for ESOPs is the story of your company, told personally in your home town to a member of Congress; but it does not hurt to have that macro data that money from the Employee Ownership Foundation made possible.

In sum, every dollar given to the Foundation by ESOP advocates is worth it, as proven by data gathered from the General Social Survey, and used by the ESOP community to make the case for ESOPs as the best debt reduction policy Uncle Sam has.

If you would like additional information about the GSS study, please use the following links: Employee Owners’ Jobs More Stable in a Nervous Economy

Filed under: Economic Performance, Employee Ownership Foundation, Employee Ownership Message, 2010 General Social Survey, Employee Ownership Foundation, ESOP Report, Washington Report Column February 2013

February 13, 2013 • 9:44 am 1

NEWS: Senator Kelly Ayotte Renews Work to Protect Employee Ownership: Introduces Pro-ESOP Bill, S. 273

The following press release was sent out by The ESOP Association on Wednesday, February 13, 2013. We wanted to share the information with readers.

For Immediate Release: February 13, 2013

For More Information: Amy Gwiazdowski, amy AT esopassociation.org

Senator Kelly Ayotte Renews Work to Protect Employee Ownership: Introduces Pro-ESOP Bill, S. 273

February 13, 2013 (Washington, DC) – Senator Kelly Ayotte (R-NH) introduced S. 273, a bill to modify the definition of fiduciary under the Employee Retirement Income Security Act of 1974 to exclude appraisers of employee stock ownership plans (ESOPs). The bill is co-sponsored by Senators Roy Blunt (R-MO), Mary L. Landrieu (D-LA), and Mitch McConnell (R-KY).

This bill is a response to the Department of Labor’s (DOL) proposed anti-ESOP regulation mandating all private ESOP company appraisers be ERISA fiduciaries.

While the original proposal was withdrawn, if any regulation was finalized to make appraisers ERISA fiduciaries there would be extreme confusion over whether the appraiser or the trustee[s], and other current fiduciaries, make the decisions about acquisition of shares on behalf of average pay employees. More troubling, it would leave private ESOP companies open to lawsuits by aggressive class action trial lawyers. Leaders at the DOL say a new proposal will be issued in July 2013. It is expected DOL will not alter the proposed regulation’s mandate that all appraisers of ESOP stock be ERISA fiduciaries.

“We’re very pleased to see Senator Ayotte not back down from protecting the best jobs policy, and the best deficit reduction policy, in Federal law,” said ESOP Association President, J. Michael Keeling. “The DOL needs to wake up to the fact that private company ESOPs have tremendous positive records of sustaining jobs as evidenced during the Great Recession. According to the General Social Survey of 2010, employer stock owned companies laid off employees at a rate of less than 3% whereas conventionally-owned companies laid off employees at a rate of more than 12% during the Great Recession. Bottom-line, ESOP companies’ employees, in the aggregate, were saving Uncle Sam $7 for every dollar Uncle Sam spent promoting employee ownership.”

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The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy. More information: website – www.esopassociation.org and blog – www.esopassociationblog.org.

Filed under: Government Affairs, Economic Performance, DOL Proposed Fiduciary Regulation, DOL Proposed Regulation on the Definition of a Fiduciary, Government Affairs, S. 273, Senator Kelly Ayotte

February 4, 2013 • 10:44 am 0

January 2013 Review

In case you missed a day in January, here’s a quick re-cap.

Do you know the ESOP advocates?

Information on the ESOP Fiduciary Handbook

ESOP Association members made Fortune’s 2013 Best Companies to Work For list

Events to add to your calendar

Foundation news: Rutgers Mid-Year Fellows Symposium

January 2013 ESOP Report was published

American Bar Association Section on Tax sent a letter to the DOL on the definition of a fiduciary

New research shows that ESOPs save the federal government billions

The Employee Ownership Month Poster Contest is now accepting submissions

Emerging Scholar Awards information

AACE Awards opened for entries

Filed under: AACE - Annual Awards for Communications Excellence, Conference Information, DOL Proposed Fiduciary Regulation, Economic Performance, Employee Ownership Message, Employee Ownership Month (EOM), Government Affairs, News Links, Publication, TEA Members, January 2013 Month in Review

December 20, 2012 • 9:58 am 0

Tax Reform and ESOPs

In November 2012, ESOP Association President, J. Michael Keeling, spoke to attendees at the Association’s Las Vegas Conference and Trade Show in Las Vegas, NV about the elections’ impact on ESOPs. As part of the presentation, he also touched on the subject of tax reform.

Today, we’d like to share with you some of his thoughts and several videos of prominent members of Congress talking about ESOPs and the need to enhance employee ownership in America.

Filed under: Conference Information, Economic Performance, Employee Ownership Message, Government Affairs, Member Services, 2012 Las Vegas Con, Government Affairs, Tax Reform

September 6, 2012 • 3:42 pm 0

Press release: ESOP Companies Report Economic Upturn in 2011

The Employee Ownership Foundation sent out the following press release today. We wanted to share the news with our readers.

For Immediate Release: September 6, 2012

For More Information: Amy Gwiazdowski, 202/293-2971, amy AT esopassociation.org

ESOP Companies Report Economic Upturn in 2011

September 6, 2012 (Washington, DC) – Results from the Employee Ownership Foundation’s 21^st Annual Economic Performance Survey of ESOP (employee stock ownership plan) companies that are members of The ESOP Association show that ESOPs saw an economic upturn over the past year. ESOP companies continue to have increased share value, better productivity, and overwhelming support among leaders of the companies, according to the results of this survey.

Since the annual survey began over 20 years ago, a very large majority, 93.3% of survey respondents, reported that creating employee ownership through an ESOP was “a good business decision that has helped the company.” It should be noted this figure has consistently been over 85% since 2000. In addition, 76% of respondents indicated the ESOP positively affected the overall productivity of the employees. In terms of profitability and revenue, both were up from previous years — 70.5% of respondents reported profitability increased and 76.2% of respondents noted revenue increased. In terms of stock value, the majority of respondents, 80%, stated the company’s stock value increased as determined by outside independent valuations; 17.4% of the respondents reported a decline in share value, and 2.6% reported no change. Asked for the first time was the question — in what year was your ESOP established? Among those responding to this survey, the average age of the ESOP was 16 years with the average year for establishment being 1996.

“In looking at past results, it’s interesting to see performance numbers in a significant reverse of what was reported a few years ago during the Great Recession,” said Employee Ownership Foundation President J. Michael Keeling. “Employees with employee stock ownership, including those with ESOPs, in general, have more sustainable employment. Hopefully our national leaders, including the current group of those running for President, of both parties, will take note and understand that we need national policies to encourage employee stock ownership among working Americans.”

The survey asked companies to indicate their performance in 2011 relative to 2010:

68.5% indicated a better performance; 17% indicated a worse performance; and 14.5% indicated a nearly identical performance to the previous year
76.2% indicated revenue increased; 23.8% indicated revenue decreased
70.5% indicated profitability increased; 29.5% indicated profitability decreased
63.8% of companies indicated they have created an ESOP education program or ESOP advisory committee since establishing the ESOP

The 2012 Economic Performance Survey was distributed to The ESOP Association’s over 1,400 members in June 2012. The results are based on 450 responses, a 32% response rate.

The Employee Ownership Foundation is The ESOP Association’s affiliated 501 (c)(3) organization dedicated to promoting employee ownership – www.employeeownershipfoundation.org. The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy. More information: website – www.esopassociation.org and blog – www.esopassociationblog.org.

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Filed under: Economic Performance, Employee Ownership Foundation, Employee Ownership Message, 2012 Economic Performance Survey Results, Economic Performance of ESOP Companies, Employee Ownership Foundation

September 5, 2012 • 1:17 pm 0

August 2012 Wrap-Up

With Labor Day come and gone, we thought we’d take a look back at August.

We highlighted the Leading in an Ownership Setting Program which is co-sponsored by the Employee Ownership Foundation and offered by the University of Pennsylvania

The 2012 Press & Event Planning Kit is now available

New S ESOP study talks about employment in ESOP companies

The President of The ESOP Association vlogged about the Republican Vice Presidential Choice, Paul Ryan

Virginia Senate candidate endorsed ESOPs

We highlighted some communications publications

The Association’s Outside Board Registry was spotlighted

The August 2012 ESOP Report newsletter is available for download

The GOP Platform endorsed ESOPs

Filed under: DOL Proposed Fiduciary Regulation, Economic Performance, Employee Ownership Foundation, Employee Ownership Message, Employee Ownership Month (EOM), Government Affairs, Member Services, Publication, August 2012 Monthly Wrap-Up

August 10, 2012 • 11:56 am 0

Study Finds S ESOPs Increased Employment in the Last Decade

In a recent post on The Hill’s Congress Blog, Congressman Ron Kind (D-WI) and Erik Paulsen (R-MN) spoke about tax reform, the call to protect American businesses, and the need to promote S corporation ESOPs as a way for individuals to save for retirement.

Citing a recent study by Alex Brill, a scholar at the American Enterprise Institute and former adviser to the Simpson-Bowles Commission, Congressmen Kind and Paulsen talked about how ESOP companies are helping to create jobs and the need to encourage growth of these companies.

If you would like to read the study by Alex Brill, An Analysis of the Benefits S ESOPs Provide the U.S. Economy and Workforce, you can find it here.

The study was funded by ESCA (Employee-Owned S Corporations of America). ESCA is a Washington based group of privately held companies of all sizes that work to preserve the S corporation ESOP structure.

Filed under: Economic Performance, Economic performance, S ESOPs

August 1, 2012 • 1:46 pm 0

July 2012 Wrap-Up

Miss a post in July? Take a look below.

We talked about the ESOPs & YouTube library.

Employee ownership researcher, Dr. Joseph Blasi, talked about new employee ownership research.

We shared tips for winning an AACE Award.

We re-capped some Congressional visits.

And shared more Congressional visit pics.

Senator Ayotte’s pro-ESOP bill, S. 1232, needs co-sponsors.

An employee ownership summit was held in London.

Senator Sanders introduced pro-ESOP legislation.

The DOL had some choice words about ESOPs.

We remembered an unsung hero of the ESOP movement.

Filed under: AACE - Annual Awards for Communications Excellence, Conference Information, DOL Proposed Fiduciary Regulation, Economic Performance, Employee Ownership Message, Government Affairs, News Links, TEA Members, July 2012 Wrap-Up Post

July 27, 2012 • 1:12 pm 0

Does the current DOL care what Congress thinks about ESOPs? Apparently not.

On July 26, 2012, Mabel Capolongo, Director of Enforcement for the Department of Labor’s (DOL) Employee Benefits Security Administration, blasted ESOPs because retiring shareholders were selling their stock to the ESOP!

Duh. This is precisely what Congress has endorsed and encouraged since 1984 — to have exiting shareholders of private companies transfer ownership of productive assets to average pay employees in a leveraged ESOP transaction. (Prime example: Internal Revenue Code Section 1042.)

For example, Congress, right or wrong, eliminated some incentives between 1986-1995 that encouraged large, publicly traded companies to establish ESOPs, but the Congress and six former Presidents have consistently affirmed special laws to encourage the creation and operation of ESOPs in private companies, including a major expansion of ESOPs by enacting law in 1998 encouraging ESOPs in S corporations.

Today, it is estimated that 95% of ESOPs created and operating were formed because an existing shareholder sold shares to an ESOP, when it became time for him/her to leave from the company, usually because of age.

It seems DOL wants the existing shareholder not to help create broadened ownership but to liquidate his/her business, or sell it to a private equity firm, or a competitor, resulting in lost jobs!

Meanwhile, there is 35 years worth of overwhelming evidence that private ESOP companies are more productive, more profitable, and more sustainable, providing locally-controlled jobs, compared to similar private companies not employee owned.

Evidence is also clear that during the Great Recession employee stock owned companies laid off employee at a rate of less than 3% while traditionally owned companies laid off employees at a rate greater than 12%.

“The ESOP community wants to work cooperatively with regulators at DOL but having a top DOL official express alarm that exiting shareholders of private companies are selling the stock to an ESOP makes cooperation hard. The expression of dismay by Ms. Capolongo about exiting shareholders selling stock to ESOPs to the benefit of the employees, the company, and American communities demonstrates the Department has no regard for laws encouraging ESOP creation and operation,” said ESOP Association President J. Michael Keeling.

If you would like to read additional comments about the DOL’s enforcement project, read the Jul 27, 2012 issue of the BNA’s Daily Tax Report. The article can be found on page G-6.

Filed under: DOL Proposed Fiduciary Regulation, Economic Performance, Employee Ownership Message, Government Affairs, Government Affairs, Employee Ownership Message, DOL, DOL Proposed Regulation on the Definition of a Fiduciary

July 9, 2012 • 3:30 pm 0

Guest Post – Employee Ownership Research

Today we welcome Dr. Joseph Blasi as our guest. At The ESOP Association’s 2012 Annual Conference in May, Dr. Joseph Blasi, a well-known and respected researcher in the employee ownership field, spoke to Conference attendees at the Employee Ownership Foundation Luncheon. He discussed new research on employee ownership and offered new insights on the findings from the 2010 General Social Survey. Dr. Blasi has been kind enough to share his presentation, and additional information, with Association members here on the blog.

First, a little bit about Dr. Blasi. He is the J. Robert Beyster Professor of Employee Ownership and a sociologist at the School of Management and Labor Relations at Rutgers University in New Brunswick, NJ. He is a Research Associate at the National Bureau of Economic Research and his work includes economic sociology, the social and economic history of the corporation, and public policy, particularly, broad-based employee stock ownership, profit sharing, gain sharing, and stock options in corporations, in countries, and in industries. For a complete bio, please visit the Rutgers University website here.

Now, let’s hear from Professor Blasi:

I enjoyed speaking with members of so many ESOP companies from around the United States at the recent Employee Ownership Foundation Luncheon at The ESOP Association’s Annual Conference in May. The Annual Awards Dinner made a lasting impression on me, since as a researcher, I do not often get to hear the individual stories and get a peek into the cultures of so many companies. I thought I would share the Power Points from my talk and a very brief summary of the new research on employee ownership, along with two tables on what we now know about employee ownership from the 2010 General Social Survey. If there are any questions, please feel free to email me at blasiATsmlr.rutgers.edu.

The following are links to the above mentioned tables about employee ownership from the 2010 General Social Survey and the summary of new research on employee ownership.

TABLE 1: Participation in Employee Ownership and Stock Options, 2002-2010

TABLE 2: Participation in US Equity Programs, by Job Characteristics (2010)

FROM: The June Issue 2012

National Bureau for Economic Research Newsletter

Does Linking Worker Pay to Firm Performance Help the Best Firms Do Even Better?

If you would like to download a copy of Dr. Blasi’s Power Point presentation, please click here. We’ll share below a few slides from the presentation.