Our sources are linked at the bottom of the page.
RMEOC understands the steep learning curve of employee ownership, and we are here to help. This list defines the acronyms and terms used throughout this site. If you have questions about any of these terms, please see our FAQ section below.
These are defined contribution plans governed by the Employee Retirement Income Security Act (ERISA). They operate through a plan trust. Employees receive allocations of stock in their accounts from contributions made by the company and, very rarely, by their own purchases. About 40% of all ESOPs own or will own 100% of the company. ESOPs range in size from companies with 10 or 20 employees to companies with tens of thousands.
A worker cooperative is a cooperative in which the workers are the majority of member-owners. This means that each worker owns one voting share and is able to participate in the governance of the business.
Stock options give employees the right to buy a defined number of shares over a specified period of time at a price set at the time they are granted. Options are usually subject to vesting, and vested options can usually be exercised for some defined period of time before they lapse. Options can be given to any employee on any basis the company chooses, with very limited exceptions.
A cooperative is an organization that is owned and democratically-governed by its members. There are many types of coops: worker coops, consumer coops, producer coops--just to name a few. Each of these is comprised of members who each own a voting share and have a vote on major decisions as outlined in the organization's bylaws.
Actually, this is not a concern for ESOPs, but rather for traditional management buyouts. With ESOPs (as outlined above) the owner’s stock is contributed to the ESOP (just like a profit sharing contribution), and the owner takes back a promissory note or a lender loans the company the necessary funds to pay the owner. The future profits of the company are then used to pay off the debt.
Actually, the costs of establishing and maintaining an ESOP pale in comparison to the commissions paid to business brokers/investment banks that are often used to find an interested third-party buyer. In addition, the ongoing costs are normally more than offset by the tax savings discussed above.
Actually, an ESOP could be a viable alternative for employers with as few as 12 to 15 employees.
Actually, the only data that must be disclosed to employees is the value of their stock. However, ESOP companies like Full Sail Brewing voluntarily make much more financial data available to employees to encourage employee engagement.
Actually, day-to-day decisions and operations will continue to be made by the officers of the company. Only major corporate matters require “pass through” voting to ESOP participants. Most “shareholder-level” decisions are made by the named trustee/fiduciary.
Actually, ESOPs are required to allow long-term employees a window to exchange up to 50 percent of their employer stock for cash, and to provide sufficient investment choices for the employee to invest that cash (or allow the employee to roll the cash out of the plan and into an IRA). Further, most employers that sponsor ESOPs also sponsor 401(k) plans to allow employees to further diversify. Certainly, no succession plan is guaranteed success. However, the ESOP option, though often overlooked, could be the “outside the box” solution for your company’s succession plan.
Though not yet mainstream, in 2011 there were 8,926 ESOPs, stock bonus plans, & profit sharing plans primarily invested in employer stock. This figure accounts for 14.7 million employee participants who together controlled $994.8 billion of value planned assets. In making the move to become employee owned you would not be going out on a new frontier alone, instead you would be joining a thriving community that has grown at an astounding rate since 1970.
Co-ops are not centralized programs but rather grassroots economic development initiatives. Worker cooperatives are a type of capitalist enterprise with strong local and social commitments. The equity or worth of co-ops is not publicly traded in the stock market and is not subject to the whims of distant owners. Worker co-ops distribute ownership among members, who are all invested in the company and its successes. Employees in these enterprises are nearby residents and consumers; they build on local pride through being owners in their workplace. They keep earnings in the community--creating a multiplier effect in the local economy. This is the strategy being pursued now in Cleveland’s Evergreen cooperatives, which employ neighborhood residents who then work together to elevate their sector of the city.
The vast majority of worker coops are actually private for-profit firms. Moreover, they need viable product or service niches to survive. Funds to support growth in market share and employment are sourced in the profits of the enterprises. If there’s no margin, there’s no mission. Conversely, if there’s no mission, there’s no soul to the enterprise. Financial solvency is essential, but so are the commitments to customers, stakeholders, and community. Along these lines, many worker co-ops make reinvestment in the community a part of their financial structure and regular operating procedure.
Leaders are needed in all enterprises regardless of the ownership structure. Worker co-ops enlist various kinds of expertise while also encouraging worker-owners to develop their skills to advance in the company to leadership positions. Effective worker co-ops employ an array of professionals, including experienced managers, accountants, engineers, attorneys, marketers, and so forth, along with workers who are close to the basic products or services. Worker-owners have opportunities for advancement and leadership; they also benefit from the company’s commitment to them. In this way, worker co-ops often practice the best version of transformational leadership, by including younger generations in decision and policy making and preparation for the future. Worker cooperatives practice shared responsibility, making leadership succession a smooth process.
“Worker cooperatives cannot grow to have a big impact on community economic development. They are always small and towards the margin.”
The cooperative economy focuses on small and medium business development, but many of these businesses grow through acquisitions, mergers, and strategic alliances. In fact, most large businesses began as smaller enterprises. Ultimately, through collaboration as well as healthy competition, worker cooperatives can become stable parts of urban as well as rural economic mixes.
Stakeholders in businesses, whether traditional or cooperatively owned, are committed to long-term success. Very few organizations of any kind, regardless of sector or industry, last more than a few decades. Some worker cooperatives are large, well-established enterprises that have become part of the economic bedrock of their communities and regions. The Mondragon Cooperative Group in the Basque Country of Spain is 56 years old and going strong.
There are thriving worker cooperatives in U.S. businesses ranging from agriculture and food and beverage services to clothing and household appliance manufacturing to law and journalism to transportation to high tech and alternative energy development. The worker-cooperative model is not one-size-fits-all but rather one that can be adapted to specific business, sector, and community needs. In sum, the worker cooperative is a flexible and well-tested model that should be part of the tool kit of effective and democratic responses by policy makers and business leaders to today’s community and global economic needs. Worker co-ops can be designed to take advantage of market niches, fit community needs, and build stable and prosperous enterprises.
The content for this page was adapted from the organizations displayed below. RMEOC thanks each of these partners for their important work and hopes that by displaying their information here, we will all be able to better achieve our common mission: a more just, sustainable and lively economy for our nation’s future. More information about each organization can be found on their sites linked below.