WASHINGTON – A new study by the National Center for Employee Ownership (NCEO) finds that employee ownership of private businesses through employee stock ownership plans (ESOPs) provided exceptional resiliency and financial security in the face of pandemic-driven economic challenges.
The study – which NCEO conducted on behalf of the Employee-Owned S Corporations of America (ESCA) – finds strong, measurable evidence that having an ESOP in place prior to the worst of the crisis helped employee-owned businesses not only to survive but also take better advantage of growth opportunities than their conventional, non-ESOP counterparts.
Drawing on objective data from 310,857 plan filings, NCEO analyzed retirement plan data from 2019 and 2020 from S corporation ESOPs and a comparison group of companies offering a 401(k) plan. Their analysis found that employee ownership provided critical financial and retirement security for employees and resiliency for these S ESOP businesses when compared to non-ESOP companies.
NCEO’s key findings include:
- Businesses with an ESOP in place provided greater financial security for employees heading into and during the pandemic, and job retention at the firm level compared to comparable conventional firms.
- The average ESOP account balance going into the pandemic was dramatically higher – more than double – than the average 401(k) account balance ($132,000 vs. $64,000) at a non-ESOP company.
- Controlling for size, industry, and location simultaneously, the S ESOP advantage is an estimated $67,000 more in retirement security – especially remarkable, given that just over half (50.5 percent) of American families have a retirement account at all. Among those that do, the median account value was $65,000.
- The average employer contribution to the S ESOP was more than 2.5 times that of companies offering only a 401(k), and 94 percent of total contributions to ESOPs came from the employer, compared to 31 percent for 401(k) plans.
- Notably, most ESOP companies also offer traditional retirement benefits such as a 401(k), in addition to providing employees with an ownership stake in the business as a benefit of employment.
- Using active participants as a proxy for employment, and controlling for company size, industry, and region, being an ESOP is associated with retaining or adding an additional 6 employees from 2019 to 2020, compared to non-ESOP employers.
“The findings of NCEO’s new study build on a growing body of data and research demonstrating the valuable benefits of employee ownership to American workers, companies and our economy – particularly in times of economic crisis,” said Stephanie Silverman, President and CEO of ESCA. “From exceptional retirement savings to outstanding job security, productivity and growth, the S ESOP structure has a proven track record of helping employees and businesses thrive. As Americans continue to prioritize economic recovery, financial security and retirement savings, the time has never been better for elected leaders to encourage the creation of more S ESOP companies to make these substantial benefits available to more hardworking Americans.”
A recent survey by John Zogby Strategies finds that workers at employee-owned S corporations (S ESOPs) report being on significantly more stable financial ground than other U.S. workers during the COVID-19 pandemic, building on previous research showing that employee-owners are more confident about their job security and less anxious about their financial futures.
In a study released last January, economist Jared Bernstein, now a member of the White House Council of Economic Advisers, affirms the benefits of ESOPs and urges lawmakers to explore ways to encourage the formation of more employee-owned private businesses. An earlier study by Dr. Bernstein demonstrated that employee ownership helps to close the wage and wealth gap between managers and workers in ESOP-owned companies.
- To read NCEO’s full findings, CLICK HERE.