There’s a Reason Why These Companies are Top-Notch: They’re ESOPs
Perhaps your class ring came from Herff Jones, you wear clothes made with W. L. Gore & Associates’ waterproof Gore-Tex fabric, admire Herman Miller furniture and enjoy books from W.W. Norton & Company.
Or, maybe you’ve bought culinary supplies from King Arthur Flour, shopped at Publix Super Markets, Hy-Vee or WinCo Foods, and gotten retirement planning advice from Robert W. Baird & Co. or relished a Clif Bar snack and a pair of Dansko shoes from The Walking Company.
They’re all stellar companies in their field. Plus, they’re all – or have been – employee-owned. W.L. Gore & Associates, which made Fortune’s 100 Best Companies to Work for in America roster for 33 straight years, has been partially employee-owned since 1969 and Herman Miller since 1977. Publix, an ESOP since 2004, is the nation’s largest ESOP with 200,000 employees, and Amsted Industries, a global maker of industrial components with 16,000 employees, has been 100% ESOP-owned since 1998.
And Herff Jones, celebrating its centennial this year, was employee-owned from 1995-2014 until a buyout of ESOP shareholders occurred and is now part of Bain Capital.
While ESOPs number roughly 7,200 companies, according to the most recent estimate, they come in all sizes. And it’s not surprising, really, that many are standout performers. Indeed, ESOPs and other broad-based employee-ownership plans account for half or more of Fortune Magazine’s 100 Best Companies list year after year. On its 2019 roster, Publix ranks 12th and Baird 16th.
Research, much of it by the Rutgers Institute for the Study of Employee Ownership and Profit Sharing and funded by the Employee Ownership Foundation, shows that ESOPs benefit employees and employers. Their workers experience layoffs six times less often than those without employee ownership, and turnover can be three times lower. ESOP employees have more retirement savings, more training and involvement in the business and more profit and gain sharing.
While their numbers are still quite small, ESOPs are gaining more interest, especially from the countless small and family-owned business owners nearing retirement, many of whom don’t have a family member eager or able to assume the reins. Our activity advising family-owned and other clients about employee ownership has been increasing substantially.
In addition, investment firms are putting equity incentive and employee-ownership programs in place in portfolio companies. For instance, global giant KKR & Co. has done that within its Industrials Group, principally comprising manufacturing companies with numerous hourly workers. This emphasis is designed to address what KKR views as a misalignment of incentives between hourly employees and employers.
Recent federal legislation is also spurring ESOP activity. The Main Street Employee Ownership Act, signed into law in August 2018, eases the way for small businesses to establish an ESOP and allows the Small Business Administration to loan a company up to about $5 million to establish one by buying company shares, with 85% of the loan guaranteed by the SBA. The National Center for Employee Ownership considers the Act “the most significant change in employee law” since the late 1990s and early 2000s, when a series of laws permitted ESOPs to be shareholders of S corporations.
So, if you admire a company’s products, its service, or the positive views of its employees toward their company, ask if it’s an ESOP. You’ll be surprised at how varied they are – from Recology, a San Francisco waste management company and The Davey Tree Expert Co., based in Kent, Ohio, with over 10,000 employees nationwide, to San Francisco-based architects Gensler, named to Glassdoor’s 2020 Best Places to Work list, and W.W. Glass & Co. of Nanuet, N.Y., among the newest ESOPs.