IT Freedom Blog

Employee Ownership Leads to Increased Economic Prospects

by Jessica Baker on

employee ownership leads to economic prosperity

“Happy Employees → Happy Customers”

It might be cliche, but we as a company believe that large part of that “happy employee” mentally comes from being an employee-owned company.

For the entirety of our company’s life, 18 years this September, our founder wanted everyone who works here to think like an owner. He wanted us to think in an entrepreneurial manner and to know how we contribute to the overall success and growth of the company. So in 2014 IT Freedom established an Employee Stock Ownership Program, or ESOP.

What is an Employee Stock Ownership Plan?

NCEO, the National Center for Employee Ownership, states that ESOPs are “the most common form of employee ownership in the US.” Employee Stock Ownership Plans are a “kind of benefit plan” that function essentially as a retirement plan, like a 401K. Unlike a 401K though, an ESOP allows employees to receive shares of their own company instead of investing in other companies. You can find out more about how an employee stock ownership plan works on the NCEO website.

The IT Freedom ESOP

In 2014 our company trust was established with our President, Carey, and our CFO, Carla, as the trustees. In the first year 5% of the company stock was contributed to the trust to be distributed among our employees. Each year another block of company stock will be purchased by the trust and distributed, with a goal of majority employee ownership by 2020 and eventual 100% employee ownership.

The way our plan works is that employees are included in the plan after being with IT Freedom for one year, with shares allocated every year relative to the employee’s compensation. Since our ESOP was established in 2014, 15 years after the company was founded, vesting was made retroactive meaning that many of our senior employees became fully vested immediately.

What are the benefits?

While Employee Stock Ownership Plans have been around since the 1970’s (check out this ESOP Historical Timeline) and it’s widely accepted that ESOP companies tend to grow faster than non-ESOP companies, more research has been required to understand the benefits to individual employees and to make an ESOP a more valuable tool for hiring and retention purposes. Thankfully, we now have that research.

On May 15, 2017 NCEO released their research report entitled “Employee Ownership & Economic Well Being.” This report details one of the first major studies of “the relationship between employee ownership and workers’ economic well being.”

This National Longitudinal Survey sponsored by the Bureau of Labor Statistics sampled 5,504 men and women from 1997-2013 to understand the correlation between the economic well being of individuals employed at employee-owned vs. non-employee-owned companies. In the most recent interview in 2013, the respondents were all between the ages of 28 and 34.

The study is in-depth and provides information on the following categories:

  • Wages
  • Household Wealth
  • Benefits
  • Job Tenure
  • Poverty
  • Families with Young Children

I won’t dive too deep into the study (even though as a psychology minor in college that’s all I want to do) but you can find the research paper and a lot of other great resources on the Ownership Economy website.

The overall statistics gleaned from this study are very interesting though.

  • Median household net worth for employee-owners vs. non-employee-owners is 92% higher.
  • Employee-owners have a 33% higher median income overall.
  • Employee-owners are more likely to have access to a larger variety of benefits. For example parental leave, tuition reimbursement, flexible schedules, and retirement plans.
  • Employee-owners have a median tenure with their employer of 5.2 years compared to a non-employee owner median tenure of 3.4 years.

These conclusions, and the rest of the detailed report, shine quite a bright light on the benefits of employee ownership for employers and even more importantly for employees. The report states the “at 6,500 US companies, 10.5 million workers partially or wholly own their employers through this mechanism.” And IT Freedom is proud to be included in that statistic.

If you’re interested in creating an ESOP for your company or have questions on how we did it, give us a call or find us on Facebook, Twitter or LinkedIn.

To see more on our employee ownership story take a look at a talk from our founder from the Small Business Festival.

Editor’s Note: This post was originally published in April 2016 but revamped for clarification and new information.

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