TWO LIKELY DEMOCRATIC presidential contenders in 2020 have made quiet strides in recent years to bring into vogue a little-known policy that could reduce economic inequality — one that harnesses current law to expand workers’ ability to become owners in their place of employment.
Sens. Bernie Sanders, I-Vt., and Kirsten Gillibrand, D-N.Y., have worked to advance legislation on employee stock ownership plans, or ESOPs, which are retirement vehicles that allow a business owner to sell their company stock to a trust co-owned by the company’s employees. The company typically purchases the owner’s shares with a loan, divides the shares among the staff, and then repays the debt annually with pre-tax payments from the company’s profits. When a worker leaves or retires, the company buys back that worker’s stock at fair market value, giving them a slice of the company’s capital earnings.
A bipartisan group of legislators first took up ESOPs in Congress in 1974, but when that generation of lawmakers retired, their successors did not embrace employee ownership with the same enthusiasm. The focus on deficit reduction, coupled with a few bad employee ownership scandals in the ’80s, ’90s, and early 2000s, led many otherwise receptive politicians to steer clear. Federal incentives for employee ownership began to dwindle, beginning under George H.W. Bush and continuing through the next three presidential administrations.
Last year, however, Sanders took up the mantle. He introduced legislationto expand state centers that provide training and technical support for establishing cooperatives and ESOPs, modeled off the successful Vermont Employee Ownership Center in his home state. Gillibrand also signed onto that legislation, which never made it through Congress.
This past summer, for the first time in more than two decades, Congress passed a pro-ESOP piece of legislation. Introduced by Gillibrand in the Senate and Rep. Nydia Velazquez, D-N.Y., in the House, the Main Street Employee Ownership Act makes it easier for small businesses to establish ESOPs and co-ops. It was included in the defense bill that President Donald Trump signed in August. (Another likely 2020 presidential contender, Sen. Elizabeth Warren, D-Mass., introduced legislation this year for a different type of employee ownership. Known as co-determination, it would require companies with revenue over $1 billion to allow workers to elect at least 40 percent of their board of directors.)
Unlike conservatives, who have defended employee ownership on the grounds that it’s most certainly not socialism — indeed, it turns laborers into capitalists — liberals have taken to ESOPs because they strengthen worker power, boost worker income, and increase corporate transparency. Workers, the arguments goes, care as much about their employment as they do about corporate profitability, so they won’t advocate for a strategy that leaves them jobless, even if it is better for the short-term bottom line. “Simply put, when employees have an ownership stake in their company, they will not ship their own jobs to China to increase their profits; they will be more productive, and they will earn a better living,” Sanders said last year.
Some progressives have criticized ESOPs, with the argument that they are little more than tax breaks for corporations that don’t give workers real ownership of a company or a meaningful say in its management. ESOPs can also create tensions with traditional labor unions, as the latter seeks to organize workers, while ESOPs tend to blur the relationship between workers and owners.
Indeed, not many unionized ESOP companies exist. Some unions — like the International Brotherhood of Electrical Workers and Steelworkers — have been open to the idea. Others, “like the [United Automobile Workers], are inherently distrustful,” said Loren Rodgers, executive director of the National Center for Employee Ownership, a national nonprofit based in Oakland, California. “In the auto industry, the threat of strikes is really important, and it’s harder to get people to strike against something when that might hurt the value of the shares in their retirement account.”
MORE THAN 14 MILLION current and former private sector workers have participated in ESOPs, according to the National Center for Employee Ownership. They work in almost every industry, from supermarkets, like the chain Publix, to policy research, like the firm Mathematica. About 7,000 companies today have the retirement plans. Research released earlier this year estimated that the average worker in an ESOP had accumulated $134,000 in retirement wealth from their stake.