Celebrating ESOP Month: How Employee Ownership Builds Economic Resilience

As we celebrate ESOP Month, we also want to highlight how Employee Stock Ownership Plans (ESOPs) can be a powerful tool for building economic resilience and addressing wealth inequality. In an era of economic uncertainty, ESOPs have emerged as a stabilizing force. Companies with ESOPs have shown remarkable resilience, being less likely to lay off employees during downturns. This stability isn't just good for workers, it's good for entire communities.

New Era of WORK?

There’s a new effort at the federal level to promote employee ownership. The WORK Act (Worker Ownership, Readiness, and Knowledge Act), which took effect at the start of the fiscal year, hopes to promote ESOP adoption by providing funding for feasibility studies and implementation. The act authorizes $50 million over five years to create the Employee Ownership Initiative within the Department of Labor to promote employee ownership. This model will encourage businesses to adopt an ESOP or worker cooperative model by providing resources, funding, and technical assistance. Not only will this help workers take a more active role in their companies by owning a stake in the business, but it will also lead to shared decision-making and a stronger connection between employees and the company's success. The WORK Act, which is funded through 2029, builds on the foundation laid by the Main Street Employee Ownership Act of 2018, which facilitated Small Business Administration (SBA) loans for ESOP conversions.

Bridging the Wealth Gap

Perhaps one of the most exciting aspects of ESOPs is their potential to address wealth inequality. A study by the National Center for Employee Ownership (NCEO) found that, among workers early in their careers, ESOP participants had 92% higher median household wealth compared to non-ESOP employees. This impact is particularly pronounced for low- and moderate-income workers. Employees in ESOPs accumulate ownership stakes in the company at no personal financial cost. This creates a pathway for workers to accumulate wealth in ways they might otherwise find inaccessible.?

ESOPs also allow owners to keep their companies independent and locally owned, while fostering a culture of employee ownership. The latter has been shown to drive productivity and retention—thanks to employees having a real stake in the company. We also see ESOPs showing promise in narrowing the racial wealth gap, with minority employees at ESOP companies reporting higher income and wealth levels than those at non-ESOP firms.

The Rise of ESOPs in Business Succession Planning

With a significant portion of the U.S. business landscape consisting of aging baby boomer entrepreneurs, ESOPs offer a viable solution for business succession planning. As these business owners retire, transitioning to an ESOP can ensure the company remains locally owned and operated, preserving jobs and community ties. Unlike traditional sales to private equity or external buyers, ESOPs keep control of the company with the employees and provide a structured, gradual transition. This approach not only protects the legacy of the business but also rewards employees for their contributions, as evidenced by the fact that ESOP-owned companies are half as likely, compared to non-ESOP firms, to go bankrupt or close over the course of 10 years. Not only is it applicable for small businesses, but also family businesses. By reinforcing a family business’s foundation, an ESOP structure can help these companies thrive for years to come.

As we celebrate ESOP Month, it's clear that employee ownership is more than just a feel-good policy—it's a practical solution to some of our most pressing economic challenges. By fostering inclusive capitalism, ESOPs are helping to create a more equitable, resilient, and productive economy. Whether you're a business owner considering succession options, an employee interested in the benefits of ownership, or a policymaker looking for innovative economic solutions, ESOPs deserve your attention.

This ESOP Month, let's commit to exploring and expanding the possibilities of employee ownership. The future of the American economy may very well depend on it.