Opening the Door to More ESOPs
By David Cimpl, Chair of the Board, ESCA, and CFO, MMC Corp
May 21, 2019
Of the many hats I wear, being an employee-owner at MMC Corp is one my favorites. Our company adopted an Employee Stock Ownership Plan (ESOP) nearly twenty years ago, which gave our workers an ownership stake in the company, and set a workplace culture of friendship, hard work, and pride. There isn’t a question of who is best off when business at MMC is going well—it’s all of us.
There’s no denying that employee ownership is beneficial to both workers and their companies. Researchers have found that companies with ESOPs have higher productivity growth and more resilience after an economic downturn. Employee-owners at ESOPs also enjoy higher levels of retirement savings, according to a 2018 study from the National Center of Employee Ownership. Recently, the Progressive Policy Institute (PPI), a leading think tank in Washington D.C., echoed these sentiments in a policy memo calling on Congress to pass legislation to encourage more companies to adopt ESOPs.
So, if the reviews are so good, why aren’t there more ESOPs?
As PPI points out in its memo, the tax code gives incentives to C corporations that it doesn’t offer to S corporations, making the cost of creating an ESOP too high for many S corporations. This seemingly small detail in the tax code has created a significant barrier to allowing more American workers to thrive from the benefits of employee ownership.
Since the 1980s, S corporations have been the fastest growing business entity and are now the second-most common form of business organization in the United States. Imagine how many American workers could be employee-owners through an ESOP if it was easier for an S corporation business owner to convert to an employee ownership model. Imagine still the higher wages these workers could enjoy, the boost in pride of their work, and the better savings they’d have for a secure retirement.
That’s why Congress should give equitable tax treatment to all business owners converting to ESOP ownership. Doing so would encourage more firms to adopt the model and would open the door to employee ownership to that many more workers.
As PPI puts it, American workers “deserve a larger share of the growth they help create. ESOPs help deliver that, and they help drive greater business productivity in the process.” We all agree that employee ownership is a powerful and productive model. Now let’s make sure that more businesses—and their employees—get the opportunity to enjoy it.
David Cimpl is Chairman of ESCA’s Board of Directors and CFO of MMC Corp, an employee-owned construction holding company based in the Kansas City area.