ESOP Companies Continue Long Streak of Outstanding Financial Performance

The results of this year’s Economic Performance Survey (EPS) show that, once again, companies belonging to The ESOP Association have experienced positive corporate performance.

Just as importantly, the EPS once again shows that when companies perform well, employee owners share in the rewards. And this year, new data reveal a new facet of how ESOP companies distribute those rewards.EPS Report Cover_Page_1

Employee Owners Share the Rewards

For the first time ever, this year’s survey included questions on pay increases. The results show that 75 percent of responding companies increased wages at or above the national average of 2.7 percent, and 29 percent increased wages by 4 percent or more.

Sharing the wealth with employee owners is a fundamental aspect of ESOPs and one that helps align the efforts of all employee owners with the performance of the company.

In addition, 55 percent of responding companies contributed to their ESOPs an amount equivalent to 11 percent or more of their employee owners’ pay—far surpassing the typical 401(k) match.

Sharing the wealth with employee owners is a fundamental aspect of ESOPs and one that helps align the efforts of all employee owners with the performance of the company.

Profits Rose More than Revenue

The engagement of employee owners may help to explain a noteworthy trend: Companies responding to our survey realize profits that grow more than revenue.

EPS Report proft revenue

Ever since we started asking for more detail on revenue and profits in 2016, ESOP companies have reported profit margins that rose higher than the highest increases in revenue. The only explanation we can find is that these companies excel at managing costs, which is consistent with businesses that engage their employees and seek better, more efficient ways to operate.

Not every employee can contribute to greater sales or revenue. But every employee—especially those engaged in the business and who stand to benefit from its improved performance—can help reduce waste and improve efficiency.

A History of Strong Performance

Since the EPS was launched in 2000, the majority of responding companies have reported increases in profits for every year but two (2002 and 2010), and increases in revenue for every year but one (2010).

The exceptions noted above reflect the nationwide economic downturns of the prior years (2001 and 2009). Even in those challenging economic times, 29 percent or more of ESOP companies responding to our survey reported that profits and/or revenue increased.

These results align with recent academic research that found employee-owned businesses surpass conventionally-owned companies at riding out tough economic times. (See How Did Employee Owned Firms Weather the Last Two Recessions? by professors Fidan Kurtulus and Douglas Kruse.)