Washington, D.C. – Today, Employee-Owned S Corporations of America (ESCA) released a new report that finds employment at employee-owned firms known as S ESOPs increased at a faster rate than private-sector employment since 2002. Over that same period, just 1 percent of private business exits led to the creation of an S ESOP.
Authored by Alex Brill, the CEO of economic consulting firm Matrix Global Advisors (MGA), the report compares the number of S ESOP conversions to other business exit strategies, including mergers and acquisitions (M&A), private equity (PE) buyouts, and initial public offerings (IPOs). The findings suggest that policies incentivizing owners of privately held companies to pursue an S ESOP as an exit strategy can boost U.S. job stability.
“For certain private business owners, a way to preserve a firm’s continuity, foster employee commitment, and build lasting economic value in a community is to sell the business to its employees through an ESOP,” said Brill, formerly the policy director and chief economist for the House Committee on Ways and Means and currently a scholar at the American Enterprise Institute.
“Given the many benefits of ESOPs to the economy and the current low level of conversions, policies to support wider adoption of employee ownership can boost the prevalence of this exit strategy, benefitting workers,” Brill added.
The report’s findings are particularly relevant, Brill notes, as growing numbers of Baby Boomer business owners retire in the coming years. Key findings include:
- Employment among S ESOPs in continual operation since 2002 increased 37 percent, while total nonfarm private employment increased only 8 percent over the same period of time.
- S ESOPs have historically been more resilient in the face of economic downturns, outperforming other private employers in the U.S. during and after the 2008 recession.
- S ESOPs in particular lead to greater firm longevity and higher wages, wage growth, job stability, retirement plan contributions, employment, and sales.
- An average of 100 S ESOP conversions occurred annually, ranging from 86 in 2002 to 149 in 2012.
- In 2015, S ESOP conversions represented just 1 percent of exit transactions. S ESOP conversions are roughly as common as IPOs (1 percent), less common than PE buyouts (4 percent), and well below foreign M&A (15 percent) and domestic M&A (79 percent).
“Brill’s study reaffirms the positive impacts S ESOPs have on their workers and surrounding communities. Today, S ESOPs exist across every major industry, with more than 470,000 employees sharing in the upside of their business’ success. Our goal is to increase employee ownership as a means to create jobs, drive economic growth, and promote retirement savings,” said ESCA Chairman Denny Scott, Chief Financial Officer at Burns & McDonnell.
In the 114th Congress, H.R. 2096 and S. 1212–legislation to encourage the creation of more S ESOPs–garnered strong bipartisan support, with 96 cosponsors in the House and 35 in the Senate. “Congress has an opportunity to increase employee ownership and strengthen local companies and their workers across the country,” said ESCA Policy Committee Chair Mike Wofford, Executive Vice President and General Counsel of Entertainment Partners. “More private, employee-owned companies means more American workers are adequately prepared for retirement and that our communities can fully harness the economic growth and job creation driven by these firms.”
The full report can be found here. The fact sheet is here.
For more information on S ESOPs, click here.