ESOP Historical Timeline
As we developed this website, we began thinking about giving a comprehensive historical overview of ESOP origins and development. We sought first-hand information that we could collate into a thorough narrative, for the benefit of people who seek to understand how these financial instruments came about and how they evolved throughout the decades, the people who shaped them and, through their visionary and heroic efforts, made them into a powerhouse solution for business succession.
Luckily, we found most of the early founders and innovators of ESOPs to be alive and willing to be interviewed, which yielded a treasure trove of finance history, and a wealth of untold stories about the progress of ESOP structure and management.
Based on these insights, we have compiled a timeline of key developments in ESOP history. We hope that this will help all our readers form a better understanding of ESOPs, their development and the personalities involved.
In addition, we have used our primary source interviews to create an ESOP Advisor Hall of Fame. Here you can read our interviews with the people who shaped the development of ESOPs. You can't find these interviews all in one place anywhere else!
1913 – Economist, lawyer and “father of the ESOP,” Louis O. Kelso is born in Denver, CO.
1921 – Along with tax reductions, the Revenue Act of 1921 establishes a legal framework for Stock Bonus Plans.
1956 – Louis Kelso is charged with developing a succession plan for Peninsula Newspapers, Inc. Co-owners, both in their 80s, are reluctant to sell the company; fearing layoffs for their employees, they want to explore ways to transfer ownership to their workers. Unfortunately, none of the workers have enough money up front, and can't borrow enough to cover the costs. Kelso has the idea of borrowing money through the Stock Bonus Plan – despite requiring higher employee contributions than before, this will allow the buyout loan to be paid off with before-tax dollars. Kelso's innovation, which he calls at the time the “second income plan,” is considered to be the first ESOP.
1958 – To help a group of dairy farmers in the Central Valley of California, Kelso expands the ESOP principle to consumers by developing the Consumer Stock Ownership Plan (CSOP), which raises capital and promises consumers equity shares in the future. This becomes a popular solution for public utilities, and the groundwork for many cooperatively-funded enterprises, especially in agriculture.
1958 – Kelso’s and Mortimer Adler’s book “Capitalist Manifesto” is published; the book argues that wealth concentration occurs due to the fact that capital is more productive than labor, and puts theoretical ground under the idea of compensating workers with capital instead of cash in hand.
1959-60 – While an undergraduate at UC Berkeley, Roland Attenborough begins a correspondence with Louis Kelso, later inviting him to present his ideas from the “Capitalist Manifesto” in front of various student organizations.
1961 – Kelso and Adler publish their second book: “The New Capitalists.” The book further develops their ideas for “capitalist democracy”: it proposes to broaden the base of capital holders by making it easy for the average worker to take out non-recourse, insured bank loans as investment capital.
1964 – The IRS sets rules for Plan Sponsors (designated responsible parties that are tasked with setting up health care or retirement accounts), allowing approval at the field, not national, IRS offices. This greatly eases the process of receiving approval for a Plan Sponsor.
1967 – Kelso and Adler publish their third book: “Two-Factor Theory: The Economics of Reality.” Subtitle: “How to Turn Eighty Million Workers Into Capitalists on Borrowed Money, and Other Proposals.”
1969 – Kelso hires Roland Attenborough as an associate, while in the process of structuring the first “classical” ESOP for Sullair Corporation. Attenborough does significant work in developing the plan document and trust agreement for the transaction.
1971 – Kelso forms a merchant banking firm: Kelso Bangert & Company. The firm specializes in leveraged buyouts, recapitalizations and growth capital transactions, frequently employing ESOPs.
1971 – Harold Bangert, an investment banking client of Louis Kelso, coins the term “ESOP.” The acronym eventually supplants Kelso's own preferred “second income plan” term.
1971 - Rob Edwards started practicing law.
1973 – The Employee Retirement Income Security Act (ERISA), is slated for a vote in Congress. The law contains wide-ranging prohibitions on loans in qualified retirement plans, destroying ESOP tax advantages. Louis Kelso is introduced to Russell Long (D-LA), the chairman of the Senate Finance Committee. Soon, Long is persuaded to the merits of ESOPs and becomes an enthusiastic supporter, introducing language that defines and preserves ESOP tax advantages.
1974 – ERISA passes in Congress. Along with strong regulation governing retirement benefits and other worker-protection measures, the law establishes a formal legal framework for ESOPs. The Act is the first piece of legislation to grant special status to the instruments, as well as the first to use the term ESOP.
1974 – Menke & Associates, Inc is formed by John Menke, one of the co-authors of ESOP legislation. The firm goes on to become America's largest ESOP administration firm.
1975 – Rainer K. Schaaf founds R.K. SCHAAF ASSOCIATES, INC. From the beginning, R. K. Schaaf specializes in ESOP planning and administration, and is today one of the largest ESOP advisory firms in the nation.
1975 – Jared Kaplan publishes the first article on ERISA ESOP rules. The article comes out in December 1975 in TAXES magazine, and is titled “ESOP's Fable.”
1976 – Private Capital Corporation is Formed by Dick Buxton and Joe Schuchert.
1976 – ESOP advisor Greg Brown begins work at law firm McDermott Will & Emery.
1976 - Rob Edwards begins working with ESOPs.
1977 – ESOP Council of America is formed by Robert Smiley Jr. & Richard Acheson.
1977 – ESOPs come under attack from the Department of Labor, which proposes legislation to outlaw them. In response, Buxton and Harry Orchard found the National Association of ESOP Companies to protect the ESOP industry. The Association successfully lobbies to defeat the law.
1978 – Dennis Long founds Benefit Consultants Inc. which will become BCI Group.
1978 – The 1978 Revenue Act mandates 15% of Conrail – the primary Class I railroad in the U.S. Northeast – be owned by an ESOP.
1978 – Buxton's Private Capital Corporation acquires Kelso & Company.
1979 – The ESOP Council of America and the National Association of ESOP Companies merge to form the ESOP Association with early trustee members like Merri Ash.
Late 1979 – Sue Ledingham becomes an associate at R.K. Schaaf.
1980 – The Chrysler Corporation Loan Guarantee Act requires that, as part of the conditions for federal emergency credit, 15% of company
shares be held in an ESOP.
1981 – The Economic Recovery Tax Act, also known as ERTA and the “Roth-Kemp Tax Cut,” expands provisions for ESOPs.
1981 – Corey Rosen forms the National Center for Employee Ownership (NCEO). The Center's objective is to help individuals and businesses research employee ownership and to act as a clearinghouse for accurate and up-to-date information about ESOPs.
1981 – After 3 years, Kelso & Company separate from Private Capital Corporation. Frank Nickell, who joined the company in 1977, heads it to this day.
1984 – Tax Reform Act of 1984 provides a big breakthrough for ESOPs by expanding the rules in the 1981 ERTA to cover additional types of stock transactions.
1984 – The heyday of the corporate raider; Carl Icahn attempts to take over Virginia company Dan River Mills. The company fights off the attempt with an ESOP.
1985 - As controller of a company undergoing a leveraged buyout, Scott Miller oversees the installation of his first ESOP.
1986 – Tax Reform Act of 1986 adds new incentives for Corporations to establish ESOPs.
1991 – Louis Kelso passes away at the age of 77.
1994 – With United Airlines on the brink of financial crisis, a large ESOP is founded as a bold new experiment in airline company governance. Over 50% of the company is distributed to employees.
1997 – Taxpayer Relief Act of 1997 allows S Corporations to set up ESOPs.
1998 – Employee owned S Corporations of America (ESCA) was formed to lobby on behalf of ESOPs to protect tax benefits from changes proposed by legislators.
2003 – Benefit Consultants Inc (BCI) is sold to The Principal Financial Group.
2003 - Rob Edwards joins Steiker, Fischer, Edwards & Greenapple, P.C.
2009 – Dennis Long (formerly of BCI) retires from the Principal Financial Group
2011 – Corey Rosen retires as Executive Director at the National Center for Employee Ownership, replaced by Loren Rodgers.