Celebrating ESOP Month

October is ESOP month.  An ESOP is an employee stock ownership plan that gives workers equity ownership in the company in which they work.  Our company, VGM Group, is a 100% ESOP, which means that all its stock is owned by our employees. There are 6,200 ESOP owned companies in the U.S., with about half of those being 100% ESOPs.  

Employee-ownership was initially conceived by Benjamin Franklin as a fair way for workers to benefit from the value of their labor, a way for those without the luxury of capital to benefit from capitalism. ESOPs were created in law in 1974 through the visionary leadership of the late U.S. Senator Russell Long of Louisiana. He had a vision of business ownership spread among many, an embodiment of the American Dream. The idea of creating a legal structure for broad-based employee-ownership along with tax incentives to make it possible for business owners to sell their companies to the employees resonated with Long. Long saw it not as redistribution of wealth but rather to pathway to opportunity for working people to build ownership wealth themselves, by being employees as well as owners of businesses.

VGM, headquartered in Waterloo, has been 100% employee-owned since 2008 when the employees, via the ESOP, purchased the company from the company’s founders.  Since then, each VGM employee receives an annual contribution of company stock in the employee’s retirement plan account. Employees accumulate shares of stock, and the wealth associated with stock ownership, over their working careers. Accounts are subject to a five-year vesting schedule.  Employee-owners receive cash for their accounts upon retirement, or five years after leaving employment if they leave before retirement age.  In ESOP companies, essentially everyone in the company owns a small piece of the pie. ESOPs companies and employee accounts are subject to the Department of Labor’s ERISA regulations and oversight. 

Employee-ownership places both the rewards, and risks, of ownership directly on the employees.  If the company is successful over time, significant financial rewards accrue to employees.  Just as home ownership creates a different mentality than renting, so too does employee-ownership create a different worker mentality than traditional business ownership structures.  Employee-ownership provides dignity, fairness and alignment.  Studies have found employee-owned companies outperform traditional owned models in customer service and other measures of success, particularly in trying times. Becoming employee-owned helped to ignite a new era of engagement and growth at VGM, due entirely to the efforts and contributions of our 1,000-plus employee-owners.

Wealth inequality is an increasing problem in America, one that exacerbates division and threatens the foundation of our country. There is no better tool to address wealth inequality than to increase the number of businesses owned by their employees. Accordingly, policymakers would be wise to pursue more aggressive policies which make it easier and more common for businesses to transition to employee-ownership and to increase the preponderance of ESOPs.  ESOP companies and employees celebrate in October, but the transformational power of employee ownership is worthy of celebration every day of the year.