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Although the United States has a rich history of allowing and encouraging employee ownership, our nation is not the only one in the world with laws that enable and govern employee ownership of companies.

Even the former USSR countries have gotten into the action and formed employee ownership privatization plans. Not to be outdone, socialist China has followed suit and has put together some options regarding employee ownership as well.

According to the 2009 PEPPER IV Report that focused on employee ownership in twenty-seven Eurogroup states and two candidate countries, the movement toward employee ownership is on the rise in Europe.

The UK is a different story. For reasons that are not entirely clear, employee ownership hasn’t caught on in the UK like it has in the USA and in the expanding economies of China and Southern Africa.

The Two Main Employee Ownership Models at Play on the Global Stage

When one moves beyond privatization plans, there are basically two models functioning across the world today.

• Employee Stock Purchase Plans
• Free Share Plans

These two models fall short of the ESOP advantages found here in the USA and as a result, in the vast majority of employee ownership plans worldwide, the employees own only a small portion (less than 10%) of the shares in a company.

Why?

Because these more basic models do not have the functionality that share pooling in a USA ESOP trust has. The result is that employees – even if they do have a share purchase option – will not buy shares because they don’t have the cashflow to do so. Still, some employees do choose to participate. But because employee shares are not in a trust where they accumulate in value until their departure the employees are more likely to buy and sell them at a higher frequency. This cycle of share purchase and sale ends up not being as beneficial for the employees because they do not gain the benefit of being invested over the long term.

Given this low employee participation rate and high stock turnover, the countries that do have laws encouraging employee ownership do not see their companies largely benefit from the ESOP trends we see here in the USA such as:

• Pride of Ownership
• Employee Role in Workflow Decisions
• Productivity Enhancements
• Improved Leadership/Employee Relationship

If countries globally desire to see employee ownership takeoff and be effective, they cannot depend on employees to take from their take-home pay to buy shares – even if the company puts up some matching funds or incentives for them to do so. Instead, foreign countries must focus on creating strategies in which it is advantageous for companies to allow pool ownership of shares.

France leads Europe in innovation when it comes to broad-based employee ownership. In their model, the company backs a bank loan for the employees to buy their shares. When combined with discounts and little to no risk for the employees, this option is very popular and a model for other European countries to copy.

What countries in the world have some form of legislation that encourages or at least governs employee ownership?

• Canada
• Australia
• Ireland
• New Zealand
• United Kingdom
• Poland
• France
• Denmark
• Belgium
• Croatia
• Korea
• South Africa
• Kenya
• Zimbabwe
• China
• Austria
• Belgium
• Czech Republic
• Finland
• Germany
• Greece
• Hungary
• Slovakia
• Slovenia
• Spain

While each of these countries has their own “take” on how employee ownership should be implemented, formatted, maintained, and governed, it is encouraging to see that nations are recognizing the legitimacy of employee ownership programs.

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Employee-owned companies have existed in the United States in one form or another since the mid-1800’s. In those early days, companies like Sears & Roebuck and Railway Express Agency were visionary in their actions and compassionate in their intent to give their employees an avenue for retirement income.

Since those initial businesses blazed the trail, many others have followed their important first steps. Today, companies like Publix Super Markets, King Arthur Flour, and Swales Aerospace are numbered among the 6,669 ESOPs in the USA. (2015 – most recent statistics available from DOL)

While the answer to how many ESOP companies are in the United States is relatively simple, there are significant observations that one can make when a deep dive is made into the numbers behind the aggregate number of 6,669.

Stand-alone ESOPs make up the bulk of that number (5,505) with KSOPs topping up the remaining 1,164 spots.

As we take a closer look at the 5,505 stand-alone ESOP companies in the United States, more details emerge.

• The vast majority of those ESOPs are private companies. – Only 129 are publicly traded.
• Large ESOP companies (ESOPs with more than 100 participants) make up the smaller share of ESOPs at 2,031 companies but have the most participants (1,190,685).
• There are far more smaller companies (with fewer than 100 ESOP participants) utilizing the ESOP model (3,344), but because of company size, the number of participants is much smaller (139,655).

Another way to measure ESOPs is the assets of the ESOP plan. If one totals the ESOP plan assets of the privately held ESOP companies in the United States, he or she will come up with a number around $107,481,000,000.

Again, the size of the company drives the ESOP plan assets inside of our statistics. The large ESOP private companies had an accumulated total ESOP plan asset worth of $95,356,000,000 while the small private ESOP company’s total combined ESOP plan assets were $12,124,000,000 in 2015.

Where does the ESOP model thrive?

By surveying the entirety of ESOPs across the United States, we can begin to make some educated observations about what kind of companies historically and currently operate well within the ESOP framework.

Our latest data suggests the following.

The services industry and manufacturing overwhelmingly lead the way in the adoption of the ESOP model. The services industry makes up 28% of all ESOPs and manufacturing comes in a close second at 22%.

Why is this?

Historically, these are two industry sectors where workers have seen lower wages and fewer benefits. As a result, the ESOP model was attractive for employee-friendly employers as well as employees hungry for change. Once the ball was rolling in these sectors, the ESOP model was more readily adopted by others within the same industry.

Following Services and manufacturing, the industries with the next highest percentage of ESOP companies are:

• Finance/Insurance/Real Estate at 17% of the total of ESOP companies.
• Construction at 11% of the total of ESOP companies.
• Wholesale trade at 9% of the total of ESOP companies.
• Retail at 6% of the total of ESOP companies.

From there, the numbers drop off dramatically and are taken up by industries such as transportation, communications/information, utilities, agriculture, and mining.

C Corporations and S Corporations

While C corporations make up the majority of ESOPs at this time (3,477 of total ESOPs), S corporations are not far behind (3,192 of total ESOPs).

What Area Of The Country Has The Most ESOPs – And Why?

The mid-west wins the ESOP national race with 32% of the total ESOPs in the United States. This is closely followed by the South with 30% of the total ESOPs.

The numbers of ESOPs begin to fall when we look at the western states (only 23%), and the northeast pulls up at the back of the pack with only 16% of ESOPs.

Why? The answer is again found in history. As we mentioned earlier, the ESOP model found fertile ground in the industries of services and manufacturing. The mid-west and the south simply had more of these types of companies earlier on, and so the acceptance of the ESOP model was stronger through the south and midwest where employees were hungry for change and employers were looking to give it to them.
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