The Rise of Employee Stock Ownership Plans

Through the ESOP plan, 2,000 employees at the ram family of restaurants and breweries are eligible to gain some ownership of the company.
Through the ESOP plan, 2,000 employees at the ram family of restaurants and breweries are eligible to gain some ownership of the company. C.B. Potts

At first, the reaction was more confusion than excitement.

In December, The RAM family of restaurants and breweries announced plans for an employee stock ownership plan, or ESOP, but few employees knew exactly what it meant. The more they learned, however, the more they liked the idea—and outsiders did, too. The 30-unit RAM Restaurants have seen an influx in applicants for open positions and president Jeff Iverson expects the ESOP will result in more loyalty and longevity of the company’s 2,000 eligible employees.

“As they learn more and hear more, they’re becoming more excited,” Iverson says. “Anytime someone has skin in the game, I think you can expect a different level of result. Will they stay around a lot longer? They should.”

Though details vary between companies, the basic premise of employee ownership remains constant: As a benefit, employees receive some level of stake in a company’s ownership, which many believe leads to better quality work, higher loyalty, and less turnover. That’s because even the lowest-tier workers have a vested interest in a company’s long-term profitability. Until now, many restaurants have shied away from employee ownership. But at a time when the restaurant industry is increasingly facing criticism over low wages and dead-end jobs, employee ownership is starting to catch on with some multi-unit full-service operators.

Since the announcement was made in late 2014, the day-to-day operations haven’t changed at The RAM’s restaurants and breweries, a Lakewood, Washington-based company that comprises three distinct restaurant brands across six states. The Iverson family still runs the business. Now, employees who work 1,000 hours a year are eligible for the long-term benefit of the ESOP, which grows along with the company’s profits.

“Basically, it is a retirement plan,” Iverson says. “Those shares accumulate in each individual’s account. It’s not a get-rich-quick scheme. But if people are committed to a company and stay with a company, there will be a nice pot of gold for them down the road.”

Understanding Employee Ownership

Employee ownership is most popular in manufacturing, professional services, and finance industries. According to the National Center for Employee Ownership (NCEO), a nonprofit clearinghouse on the topic, about 70,000 companies in the United States offer ESOPs, government-regulated plans in which employers—oftentimes for free—dole out shares to workers through an ESOP trust.

Aside from ESOPs, some businesses offer unregulated employee stock options or profit-sharing plans. But there are no strict rules surrounding the term “employee-owned,” says Loren Rodgers, executive director of the NCEO.

“It’s a really ambiguous term. And there’s no standard,” Rodgers says. “Anybody can call themselves employee-owned.”

Rodgers says companies with ESOPs, the most common form of employee ownership, often report better results: Research shows those companies see productivity bumps, they’re less likely to be acquired or go bankrupt, and because they’re more likely to offer 401(k) plans, employees of ESOP companies have more than twice the accumulated wealth of workers at non-ESOP companies.

Many assume that employee ownership changes a company’s governance, but Rodgers says companies generally continue to have traditional leadership with a board of directors and a CEO. Generally, employees would only have voting rights on big issues like selling off a company or mergers and liquidations.

With ESOPs, companies can shift over a small percentage of their ownership, such as 20 percent, or owners can use an ESOP as an exit strategy, transferring all ownership over to employees. Private companies often employ ESOPs, though some larger public companies like Publix Super Markets have offered such plans.

“The ESOP story is really the story of a small private company that makes everyone not solidly wealthy, but solidly middle class,” Rodgers says.


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