About Employee-Owned Companies

by Devra Gartenstein; Updated September 26, 2017
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Employee-owned companies range from anarchist bakery collectives to mainstream supermarket chains, pharmaceutical companies and engineering firms. These diverse organizations share a commitment to benefit their members through monetary reward as well as personal engagement. When you own a piece of the business where you work, you care more about its success. This added commitment benefits the business, which reaps financial gains from motivated employees. It also benefits the worker owners, who enjoy a more dynamic workplace as well as a share of the company's value and profit.

Types of Employee Ownership

A business with an employee stock ownership plan (ESOP) facilitates worker ownership by implementing a framework for allowing workers to purchase company stock at an advantageous rate, usually as part of a retirement package. A worker cooperative develops a plan for sharing ownership through patronage, or participation, rather than monetary contribution. For example, workers may earn ownership shares relative to the amount of overall time they have worked for the company or they may have the option of working additional hours in exchange for equity.

ESOPs and Employee Ownership

Companies that offer ESOPs give employees the option of owning part of the company, but they are not necessarily employee-owned. Other shareholders who may have minimal participation in day-to-day company activities often own most of their equity. The National Center for Employee Ownership considers an employee-owned company to be one which is owned at least 50 percent by its employees and allows at least half of its employees to participate in the stock option plan.

Monetary Return

Workers who own equity in worker-owned companies reap financial returns when their companies are profitable, but the nature of this compensation varies from business to business. Workers who own stock may receive the same dividends as non-worker shareholders while receiving the additional benefit of owning extra shares by virtue of an advantageous worker-owner stock price. Other companies may delay compensation until a worker-owner retires and sells back his shares. Compensation terms are specified in each worker-owned company's bylaws.

Sharing Decision Making

Employees who own shares of a conventional ESOP are usually not automatically granted decision-making power about policies and company direction, although employee stockholders are typically allowed to vote for boards of directors. Cooperatives and collectives are organized around principles for shared decision making, particularly in terms of the principle of one member, one vote. Cooperatives do tend to have boards of directors to facilitate decision making, but members commonly have ongoing input regarding large and small decisions. A cooperative's bylaws should designate which types of decisions are made by the board and which are made by the entire membership.

Making the Change

Employee ownership can be an exit strategy for proprietors of closely held businesses or a move to increase worker engagement. Every employee-owned company has its own culture and challenges, and a business interested in transitioning to employee ownership should evaluate its reasons for making the change before developing an ownership plan and a set of bylaws. For example, a company whose founder is interested in stepping away gradually may create a format that rewards his long-term investment and encourages shared participation from new worker-owners.

About the Author

Devra Gartenstein is an omnivore who has published several vegan cookbooks. She has owned and run small food businesses for 30 years.

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