Many of these companies seem to encourage a more responsive and more cooperative management style in the workplace, one reason they are disproportionately represented on the various “Best Places to Work” lists. Fortune reporter Christopher Tkaczyk, who worked for five days at one of Publix’s Florida stores, describes his coworkers as “pleased-as-punch, over-the-moon, [and] ridiculously contented.” Publix’s voluntary turnover rate is 5 percent, compared to the retail industry’s average of 65 percent. It has never had a layoff in its history.
When employee ownership of this sort does make it onto the radar, it is one of the few ideas that liberals and conservatives seem to agree on. The left favors spreading the wealth. The right wants to create more capitalists. With employee ownership, they can both get their way. In April of this year, the House Small Business Committee held hearings on a bill that would support the idea with technical assistance and other incentives. Committee chair Steve Chabot, a Republican from Ohio, decided after hearing testimony that he wanted to join the 60 other cosponsors of the bill, who came from both sides of the aisle. Representative Janice Han, a Democrat from California, told The Hill’s Naomi Jagoda that while politicians from both parties are talking about income inequality, “it’s been really amazing to hear from our witnesses today that proved that you don’t have to choose between people and profits. You can follow business practices that actually promote both.” A June poll found that 68 percent of those surveyed “support the concept of companies being owned by their employees.”
With support like that, why haven’t more political leaders climbed on board the bandwagon? One reason may be the terribly unsexy details of the employee-ownership structure. A company creates a trust called an employee stock ownership plan (ESOP), which is technically a retirement program and is governed by a host of government regulations. The ESOP buys a chunk of shares from a company owner, often by taking out a loan. As it repays the loan from the company’s revenues, it credits the shares to the retirement accounts of individual employees. They can cash out the shares’ value when they retire or leave the company.
It’s too bad that the specifics are eye-glazing, because an ESOP’s effects are sort of magical. Owners get full value for their shares. Employees get stock without spending their own money. Unlike a distribution of stock options or an outright gift of stock (as in the recent example of Chobani, the yogurt maker), employees as a group retain ownership of the company through the ESOP. Often, the ESOP begins by buying a minority of shares and expands to majority or 100 percent ownership over time.
Another factor is that ESOPs had a rocky beginning, which for a while made them appear sketchy. A few widely publicized companies set up ESOPs purely as defenses against hostile takeovers. (Polaroid, for example, was accused of doing just that, leading one influential columnist to label ESOPs a “hoax.”) Some other companies played fast and loose with stock valuations. But the cowboy era is pretty much over; today, the U.S. Department of Labor keeps a close eye on every such plan and takes offenders to court when necessary. “Enforcement is congruent with the purposes of ESOPs,” said Timothy Hauser, an official in the DOL’s Employee Benefits Security Administration. “We do it to promote the interests of the workers that ESOPs serve.”