Employee Ownership Supports Stronger Families

The middle-class family is no longer economically viable. It wasn’t so long ago that my parents were able to raise 9 kids on a policeman’s salary. We didn’t take vacations in Hawaii or shop at Nordstrom, but we were well fed growing up in an old fixer-upper in Seattle’s Capitol Hill neighborhood. Even though today’s typical household sends two adults into the workforce instead of just one, the purchasing power of the family has not kept up with inflation. Instead, according to the Economic Policy Institute, the average household net worth for the majority of Americans has declined over the last 30 years, destabilizing the economic security of the family unit.

Statistics tell a troubling story. According to the U.S. Census Bureau’s Current Population Survey, in 2016, 48.6% of women ages 15 to 44 had no children. This represents the highest percentage of childless women since the Bureau started tracking that data in 1976. While many women might point to the cost of raising a child as a reason for remaining childless, numerous couples who do have children together remain unmarried, in part, because of the financial disincentive. And those at the lower end of the pay scale who do marry, end up divorcing at a rate greater than those who enjoy higher incomes. The dignity of the family is further undermined by tax disincentives, an unhealthy reliance on government subsidization of housing, childcare, medical care, transportation, and education. 

Employee Ownership

If stagnating wages are in fact a substantive problem, can answers be found in higher taxes and more social programs? Not for long—if at all. Band-Aid fixes fail to address root causes. And our country can’t afford it, anyway. A much more promising solution has been gathering momentum for the last several decades. This solution (sometimes termed “Shared Capitalism”) is employee ownership. This structure not only pays higher wages than peers but allows every employee to earn ownership and participation in the value creation of the enterprise. Instead of profits being siphoned to a small group of outside shareholders who are already financially secure, shared capitalism emphasizes a wider participation in the profits by including workers, not just shareholders, in the success of a company. Individual workers and the U.S. economy as a whole have much to gain from increased attention to the untapped benefits of shared capitalism.

Employee Stock Ownership Plans Benefit Labor and Management 

The most common framework for employee-owned firms is the Employee Stock Ownership Plan or “ESOP,” which allow workers to build up capital ownership in addition to wage income. ESOP companies purchase stock with credit and then grant stock ownership to workers as the loan is paid back through the future profits of the company. Presently, 6,500 American companies employ 10.5 million workers who partially or wholly own the companies for which they work. These worker-owned companies experience stronger year over year growth, greater customer satisfaction, and longer-term competitive advantage than comparable companies. Research published in 2017 by Nancy Wiefek, Ph.D., found that employee-owners, ages 28 to 34, had 92% greater median household net worth than non-employee-owners, as well as 33% higher income from wages, more job security, and better benefits. A couple of examples from Dr. Wiefek’s employee interviews include: 

• Single mother Ayanna Banks in San Francisco: “Being an ESOP company is more like being one family, and that’s because everyone cares. They know that this is just not a company they work at, it’s a company they have ownership in.” 
• Veronica Ortiz, an employee-owner at Web Industries: "We teach one another to understand the business and to take part in the challenge of growing it for ourselves, our families, and our successors—no matter what our titles may be."

ESOPS Benefit Families

When married couples hit financial strife, their levels of marital satisfaction are bound to drop, and they become more likely to split up. One study by scholars at the University of Missouri, which was published in the Journal of Family and Economic Issues in 2011, found that couples earning $20,000 or less a year and receiving government assistance experienced less marital quality and commitment than those who had higher incomes with some government assistance or those who received no government assistance at all. 

In contrast, ESOP employees experience less financial difficulty and fair better even in times of economic downturn, which can benefit their marriage and family life. Beside financial advantages, ESOP employees report less stress in the work environment. In the previously mentioned study, Wiefek found that worker-owned companies are three times as likely to offer medical coverage and extended family leave and four times less likely to experience layoffs.

A Brighter Future

ESOPs and other structures that support broad-based ownership have the potential to root productive capital in communities, increase the assets and incomes of working families, and help stem the financial hemorrhage that is crippling the middle class. Today, more customers are buying American to keep jobs at home, patronizing farmer’s markets to positively influence food quality in their communities, and selecting local produce with the goal of investing in their neighbors. There is reason to believe that the concept of shared capitalism has also attracted the attention of these thoughtful consumers. A 2016 survey by Public Policy Polling revealed that 68% of respondents “support the concept of companies being owned by their employees” and are willing to pay significantly more for products produced by firms that boast the employee-ownership (EO) logo. Thus, socially conscious consumers are poised to take an active role in the movement to help build a sustainable economic future for American workers and their families. 

Gellert Dornay recently turned over Axia Home Loans to its 350 employees through an ESOP in order to create a more inclusive capital structure benefiting more stakeholders. Margaret Dornay, Ed.D, has a long-standing interest in the nexus of ethics, economics, and family life. 

Editor’s Note: The views expressed in this article are those of the authors and do not necessarily reflect the official policy or views of the Institute for Family Studies.