What is Employee Ownership?

At thousands of businesses in the United States, employees own a majority of their company's stock. These "employee-owned" companies employ millions of people who each have the ability to say "I am an owner of this company." Employee-owners are often more engaged and committed to providing superior products and services. To encourage the connection between the financial stake and entrepreneurial behavior, employee-owned companies often practice a participatory management style that encourages all employees to "think and act like owners." This article provides a brief overview of the different types of employee ownership plans. For an introduction to employee stock ownership plans (ESOPs), esopinfo.org, a new website developed by the NCEO, provides a visual overview of how ESOPs work,the history of ESOPs, their benefits, and more.

Employee ownership in California

There are over 1,700 employee-owned companies in California, employing over one million people.

Employee ownership keeps businesses and jobs in California, and helps build community wealth. Some of the best known companies in California are employee owned, including Hot Dog on a Stick, Sleep Train Mattress Center, A16 Outfitters, Recology, Zachary's Pizza, and many more.

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Employee stock ownership plans (ESOPs)

The ESOP is the most common type of broad-based employee ownership plan in the U.S.

An employee stock ownership plan, or ESOP, is a type of employee benefit plan that was designed to encourage broad-based employee ownership. To increase the number of ESOPs, Congress put in place significant tax benefits for the company, selling owners, and employees. There are currently over 10,000 ESOPs in the United States employing over 13 million people.

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Other types of equity compensation plans

In addition to ESOPs, there are numerous ways to share equity with employees.

There a number of different types of equity compensation, where the employer provides a grant of stock or its equivalent to employees. These plans can cover all employees or just a select few. Some common types of equity plans are stock options, restricted stock, stock appreciation rights (SARs), and performance shares.

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Building an ownership culture

A culture that encourages employees to "think and act like owners" is the key to a successful employee ownership plan.

Research on employee ownership and corporate performance very clearly shows that companies that combine employee ownership with a high degree of employee involvement in day-to-day decisions perform better than comparable companies without an ownership plan.

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