Employee ownership is a fantastic concept, one that immediately brings to mind thoughts of equity, fairness, and sharing the wealth with those who have helped create it. But that concept sometimes gets a sideways glance from pragmatic business executives who know that sharing the wealth isn’t possible unless there is wealth to be shared.
Put another way, you won’t have much to share if you are broke.
Those executives can rest assured: ESOPs are generally very good at making money—and often are even better at it than conventionally-owned companies.
But talk is cheap, so let’s look at some facts:
Sales per employee at ESOP firms are 8.8 percent higher, on average, than at non-ESOP businesses. For the group studied, ESOP companies averaged $44,500 more in sales per employees. This means a 200-person ESOP firm would generate an additional $9 million in sales, compared to a traditional business.
Companies that were 100 percent ESOP-owned, and those with higher ESOP account balances, performed above the average.
(Source: 2008 study by Brent Kramer, a doctoral candidate at the City University of New York. Kramer is now a lecturer and holds his Ph.D. in economics. The study was funded by the Employee Ownership Foundation and included 328 firms that are at least 50 percent ESOP owned, and over 2,000 matching non-ESOP firms.)
On average, companies perform 4 percent better after adopting an ESOP, or compared to non-ESOP companies. (Source: Effects of ESOP Adoption and Employee Ownership, page 11, Steven F. Freeman, University of Pennsylvania.)
ESOPs appear to increase sales, and sales per employee by about 2.4 percent over what would have been anticipated, absent an ESOP. (Source: A study comparing 1,100 ESOP companies to 1,100 comparable non-ESOP companies for more than a decade. The study was conducted by Professors Joseph Blasi and Douglas Kruse of the School of Management and Labor Relations at Rutgers University, and was funded in part by the Employee Ownership Foundation.)
So the record is clear: ESOPs are not only good at sharing the wealth, they are also very good at creating it.