Employee-owned companies are a type of company in which the employees have direct ownership, indirect ownership, or a combination of both. The main goal of employee ownership is to encourage worker loyalty, increase the workforce’s productivity, and create a culture that empowers employees to make a greater contribution. It is widely believed that most employee-owned companies are more successful because employees are more likely to “go the extra mile” for their company. In this article, we will learn about the different types of employee-owned businesses, the factors for employee ownership, and a list of 50 successful employee-owned companies.
Employee-owned companies or employee ownership
The term “employee-owned company” is a generalization of the fact that employees usually own shares in their company. The most common form of employee ownership is where the employees hold an equal shareholding in the company in proportion to their wages, salary, or other employment benefits. While employee stock ownership plans (ESOP) are typically considered employee-owned, they are more accurately characterized as employee-ownership plans. But, what is the meaning of an employee-owned company?
What is employee ownership or an employee-owned company?
Employee ownership is the system of ownership that gives employees a share of the stock in their corporation, as well as some degree of control over management and business operations. In most cases, employees are given the power to elect their own executives, buy stock in the corporation at discounted prices, and participate in business decisions.
The idea of employee ownership is that it fosters loyalty and a sense of ownership, which can result in greater productivity for an organization. Thus, employee ownership can have a positive influence on the growth and profitability of a business. However, not all forms of employee-owned companies are considered to be “best practices” or good for the business.
Types of employee ownership companies
Employee ownership is usually categorized into the following types:
- Direct Employee Ownership – This type of employee ownership is typically where the employee owns one or more tax-advantaged share plans with the majority of the shares in their company. It is important that employees have a sense of equity ownership and fair dealing because their interests and efforts will be directed towards the success of their company. Thus, the idea of employee ownership can be powerful if it is used in the right way.
- Indirect Employee Ownership – Indirect share ownership includes the trust set up by the company to hold shares on the employees’ behalf. The employer normally organizes such a plan to provide employees with company stock but without any voting rights. Usually, there are 2 types of trust arrangements, namely an Employee Benefit Trust (EBT) or an Employee Ownership Trust (EOT).
- Combination of Direct and Indirect Ownership – In this case, the company issues stock options to the employees in addition to the shares granted by the trust. This form of employee ownership provides a lot of flexibility for each employee, as it gives them a good chance to get stock at discounted rates and purchase shares on their own if they wish.
Therefore, the most successful form of employee ownership is the one that gives employees a good sense of ownership. The key is to make sure that employees feel as though they are part of the company and that their contributions are valued.
What are the advantages of employee ownership?
The benefits of employee ownership are very clear, and many businesses would agree that employee-owned companies inspire loyalty and a sense of ownership, which can result in greater productivity for the company. Here is a closer look at some of the employee-owned companies:
- Business or ownership succession – When an owner plans to retire and is interested in keeping his business a going concern, they may sell the business to his employees. This process can be more time-consuming and expensive than selling it to outsiders, but there are many benefits for employee-ownership companies. An advantage for the owner is that by keeping the business in the family or with associates, he or she can make sure the company’s core values are maintained throughout its operation.
- Growth of the business – There is a tendency for business owners that want to expand, grow and bring new products or services to the marketplace. Employee-ownership companies have a greater incentive to grow because they have a financial stake in the future success of their company. If the company’s employees are also an owner, they will be highly motivated to keep their employer’s product and service competitive. Thus, it is also easier for the employees to pump blood into the growth of their company because they are owners and have skin in the game.
- Public service spin-out – If you are a not-for-profit organization and have become concerned about the long-term stability of your organization, it may be time to spin out. The act of spinning out is when a not-for-profit transfers its assets to a new business entity. This allows the current organization to continue its mission while the new entity can benefit from tax benefits and leverage available capital. Whether you want to spin out one of your services or the entire organization, it can be a valuable opportunity for employees to own their business and build something they are proud of.
- Startup – In this context, a startup is typically a newly established business or enterprise, especially one launched with limited funds and a small group of employees. While startups are often considered to be associated with a high degree of risk, there are many reasons to consider an employee-owned company as an option. It is a great way to ensure that your business has the proper foundation and incentives in place. Thus, it is important to measure in advance the organizational changes required to ensure your business’s success.
- Recovery from loss – In the event of financial distress, where the company is on the brink of failure and bankruptcy, transferring ownership to employees can be a positive step. As employees have a stake in the business, they will work harder to ensure that it is a success. This can result in increased productivity and can give the company’s employees a sense of control and importance.
Therefore, when an owner wants to ensure the future of their company and keep it successful, it’s a good idea to consider employee ownership. Although there are limitations, it is important to encourage better practices for the best interest of your business.
What are the disadvantages of employee ownership?
When considering employee ownership as a business structure, it is important to keep in mind that there are some limitations to employee ownership. Following are some of the common disadvantages of employee ownership:
- Dilution of control – Although employee ownership can help employees maintain more of a say in the future direction of their company, it can also dilute the control that company management has over the company’s board. In this case, even if the management is elected to the board of directors, employees of the company can sometimes challenge their business decisions. To avoid these negative outcomes, it is important for companies to establish clear policies and procedures in advance. Thus, it’s a good idea for owners to draw up a clear contract that describes the responsibilities of each partner and lays out exactly how control will be shared.
- Increased uncertainty – Employee ownership can create a lot of uncertainty for companies and their workers. This is because there is no clear line of authority or a clear agreement on the sharing of ownership. Without these things in place, it can be difficult to know how decisions are going to be made within the company or who is responsible for certain responsibilities.
- Increased costs – Employee ownership is often associated with more expensive business taxes and increased costs. This is why it’s important to consult with an attorney who can help you determine how to structure your company as an employee-owned company. It may be helpful to separate the ownership of the company into different classes of securities based on how much control each class has over the company’s board.
- Increased lawsuits – Employee ownership tends to encourage a greater sense of legal responsibility, which can result in increased litigation. This is often because employees are given more freedom than they would otherwise have and because they have a financial interest in the future of their company.
Thus, when you are deciding whether to take your company in the direction of employee ownership, it is important to weigh the potential benefits and disadvantages of your decision. Moreover, successful employee-owned companies are considered to be more stable and better run than traditional companies.
Why do employee-owned companies grow faster?
Companies that are employee-owned are typically faster growing because they have a greater focus on the future of their company. In addition, employees tend to be much more dedicated to their jobs since they see a financial stake in the success of their business. Additionally, ownership does not limit the potential for growth: When employees and owners are involved, there is more potential for introducing new products and services to the market. Thus, it can be easier to put in place a long-term plan for the company’s growth. While it is suggested to form a clear plan ahead of time in order to effectively manage the company, it’s a good idea to evaluate your plan, especially if you have been running the company for a long time.
50 successful employee-owned companies – USA
|Entry||Company Name||Location||Plan||Start year||Industry||Number of Employees|
|1||ACCO Engineered Systems, Inc.||Pasadena||ESOP||2007||Heating & air conditioning services||4,000|
|2||Abt Associates||Cambridge||ESOP||1975||Consulting & research||3,600|
|3||Acadian Ambulance||Lafayette||ESOP||1993||Ambulance services||5,000|
|4||Airborn Inc.||Addison||ESOP||1996||Electronic connectors||1,500|
|5||AlaTrade Foods||Guntersville||ESOP||2021||Poultry processing||1,600|
|6||American Systems Corporation||Chantilly||ESOP||1990||Engineering||1,790|
|7||Amsted Industries||Chicago||ESOP||1986||Industrial components||18,000|
|8||Armstrong Garden Centers||Glendora||ESOP||1980||Garden centers||1,400|
|10||Barton Malow||Southfield||Profit sharing||1952||Construction||2,300|
|11||Black and Veatch||Overland Park||KSOP||1998||Engineering & construction||10,600|
|12||Border States Industries||Fargo||ESOP||1984||Wholesale distributor||2,500|
|13||Bradford White Water Heaters||Ambler||ESOP||1992||Water heaters||2,300|
|15||Burns & McDonnell||Kansas City||ESOP||1985||Architecture & engineering||7,600|
|16||Chemonics International, Inc.||Washington||ESOP||2001||International development||4,640|
|19||DAI||Bethesda||ESOP||1975||US AID contractor||5,400|
|20||Davey Tree Expert||Kent||401(k) SOP & ESOP||1979||Tree & environmental services||11,000|
|21||EmpRes Healthcare Management||Vancouver||ESOP||2009||Post-acute long-term care||5,300|
|22||Garney Company||Kansas City||ESOP||1986||Water & wastewater piping systems||1,670|
|24||HDR, Inc.||Omaha||ESOP||1996||Architecture & engineering||10,700|
|25||HNTB||Kansas City||ESOP||2000||Architecture & engineering||4,000|
|26||Harp's Food Stores||Springdale||ESOP||1988||Supermarkets||6,000|
|27||Hensel Phelps Construction||Greeley||ESOP||1976||Construction||4,350|
|28||Holden Industries, Inc.||Deerfield||ESOP||2007||Manufacturing||1,600|
|29||Homeland Acquisition Corporation||Oklahoma City||ESOP||2011||Supermarkets||3,600|
|30||Houchens Industries||Bowling Green||ESOP||1961||Supermarkets & other services||15,600|
|31||Hypertherm||Hanover||ESOP||2001||Engineering & manufacturing services||1,900|
|33||Jasper Engines & Transmissions||Jasper||ESOP, profit sharing||2010||Engine & transmission remanufacturing||2,400|
|34||Johnson, Mirmiran and Thompson, Inc. (JMT)||Hunt Valley||ESOP||1974||Engineering & architecture||1,600|
|36||KPH Healthcare Services, Inc.||Gouverneur||ESOP||1944||Drugstores||4,200|
|38||Krueger International, Inc.||Green Bay||ESOP||1991||Furniture manufacturing||3,000|
|39||Lewis Tree Service, Inc.||Rochester||ESOP||1998||Tree services||4,500|
|40||Martin & Bayley, Inc.||Carmi||ESOP||1984||Convenience stores||1,500|
|41||Martin Resource Management Corporation||Kilgore||ESOP||2012||Distribution & transportation||1,600|
|42||Mayville Engineering Company, Inc.||Mayville||ESOP||1959||Engineering & manufacturing services||2,000|
|43||McCarthy Holdings||St. Louis||ESOP||1996||Construction||4,800|
|45||Morton Buildings||Morton||ESOP||1990||Fabrication & construction||1,800|
|46||Mulberry Street Management||Morgantown||ESOP||2020||Home health care||2,275|
|47||MyPath [was Oconomowoc Residential Programs, Inc.||Oconomowoc||ESOP||2002||Health & disability services||2,500|
|48||Newport Harbor||Warwick||ESOP||1995||Hospitality (Hotel & Restaurants)||1,500|
|49||Parsons||Pasadena||ESOP||1974||Engineering & construction||14,350|
Get expert help to manage your employee equity and stock!
It is important to consider whether employee ownership is the right choice for your company. It can be a great way to secure your company’s future and ensure that it will remain profitable. This can be accomplished with sound management and strategic planning. However, an employee-owned company requires that the company carefully establish its decision-making rules in advance. This will allow it to effectively manage its business and provide a long-term vision for growth. Eqvista is here to help you manage employee equity in order to create a positive environment for growth. The team at Eqvista is dedicated to providing the best service and options for your company. To learn more, you can contact Eqvista!