Commentary: Employee Ownership Is An Untapped Weapon Against Income Inequality

This commentary was sponsored by YPO.

Like many CEOs and business leaders, I’ve given a lot of thought to income inequality and the shrinking middle class. While none of us can solve sweeping societal issues singlehandedly, we can make a real difference in our teams’ lives through our decisions on compensation and benefits.

But generous compensation alone isn’t enough to help employees build real savings and wealth. In our economy, the costs of basic necessities like housing, groceries and healthcare are very high relative to the average person’s pay. Many people are living a precarious, paycheck-to-paycheck existence. Higher education, long a ticket to upward mobility, is priced out of reach for many Americans and no longer guarantees a higher salary.

Our company, a 150-person maker of high-pressure waterblasting tools and automated equipment used in industrial cleaning, adopted an employee-ownership model to address challenges like these. Starting in 1998, employees were given the opportunity to buy stock in the company as a private stock ownership program. Due to the homegrown model’s success, we introduced an employee stock ownership plan (ESOP) in 2015. In the ESOP, our team members earn part of their compensation in shares held in trust until they leave the company or retire, when their shares are purchased by the plan. On top of the ESOP, we also offer our team participation in our profit-sharing plan. These two programs together give our employees a chance to generate more wealth than they otherwise would have.

Setting up the ESOP took substantial time and money—there is significant legal compliance involved—but it was one of the best investments we ever made in our company’s future. When employees know that the company’s success helps them build wealth, a unique ownership and accountability culture takes shape.

That manifests itself in many ways. For instance, when we had a ransomware attack that shut down all of our IT systems in February 2020, I asked our team how we could keep shipping to customers without interruption. Thanks to their suggestions and tireless effort, we were up and running the next day, albeit using an entirely manual process, and had the biggest shipping week in our company’s history. Our customers never felt a thing. Ultimately, moments like these have contributed to double-digit revenue growth throughout the history of our company.

Many companies see other benefits, as well, particularly when it comes to employees’ financial wellness. Research shows that employee ownership plans bring higher wages, better benefits, more job security and less turnover. As a result of benefits like these, 6,500 companies now offer employee stock ownership plans (ESOP) in which 14 million Americans participate; another 9 million companies have given employees stock options, according to the National Center for Employee Ownership. Even Harley Davidson has embraced employee ownership. It has issued stock to 4,500 of its employees, among them all of its hourly factory workers.

With many states looking to help Americans still reeling from the pandemic, encouraging employee ownership could become an important part of the solution. Historically, there has been strong bipartisan support. And the timing is ideal now. President Biden’s cabinet nominees have been strong supporters of employee ownership.

But simply spreading the word about employee ownership isn’t enough. Setting up an employee ownership program can be complicated because of federal regulations – our ESOP plan is more than 300 pages long! — and companies may get discouraged if they attempt it on their own. There is no coordination around employee ownership in the federal government and no agency to guide them.

It will be up to the states to do that. Here in Colorado, Gov. Jared Polis has already made employee ownership part of his platform to fight income inequality. The Colorado Employee Ownership Commission he set up has made it easier for local companies to learn about employee ownership. ESOPs are one option, but other fairly common types of equity compensation for employees include stock options, employee stock purchases plans, restricted stock, phantom stock, stock appreciation rights, performance shares and direct grants.

The Colorado Employee Ownership Office provides technical assistance. Many states could jump-start their progress by setting up a similar office.

This could help preserve local economies and middle-class jobs as the “silver tsunami” sweeps through the manufacturing world. With many older owners getting ready to retire, job-creating businesses in many communities are likely to close or get gobbled up by private equity firms. Embracing employee ownership could offer current owners a way to cash out by selling their ownership stakes in their companies to their ESOPs. Employee ownership protects jobs and allows teams that truly care about keeping the business intact to stay on. It’s ultimately a way to build a much stronger financial future—for the company, for the community and for workers who might not otherwise have a chance to build wealth for themselves and their families. 

Kerry Siggins is CEO of StoneAge, a manufacturing firm based in Durango, Colorado, and a member of YPO. She also sits on Gov. Polis’s Commission for Employee Ownership.