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!
ESOP History Timeline
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 develops a succession plan for Peninsula Newspapers, Inc., whose elderly co-owners want to transfer ownership to employees who lack the funds to buy in. Kelso’s solution: borrow through the company’s Stock Bonus Plan, repaying the loan with before-tax dollars. This “second income plan” is considered 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.
1 of 44