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The purpose of this paper is to review and analyze policies where employee share ownership might be relevant to the inequality debate in the USA.

Description and analysis of policy alternatives designed to increase the prevalence of employee ownership in the USA economy.

Since 1974, Congress has passed many provisions to encourage employee ownership, all with widespread bipartisan support. Additional policies would have an even greater impact. Congress could “level the playing field” for corporate divestitures and sales of companies by private equity firms; create Employee Ownership Investment Corporations, modeled after Small Business Investment Corporations, to provide capital for sales to employees; and create an Employee Equity Loan Program to guarantee loans for employee-ownership transactions. Such measures would have no budgetary impact. It could also create tax incentives to encourage corporate and private-equity sales to employees and establish regulations to ensure that employee-owned companies are eligible for the full benefit of recent opportunity zone legislation. Legislation could also encourage publicly traded companies to offer stock to employees at a discount and require companies that receive various forms of special treatment from the government to establish employee stock-ownership programs.

The academic journal literature has virtually no policy analyses on employee share ownership.

This paper looks at the research to date on the future of broadly granted stock options (options granted to at least half the full-time employees of a company). In the U.S., granting options broadly became popular in the late 1990s, but has lost some of its appeal in the wake of stock market declines, accounting changes, and increased shareholder concerns about dilution. The data indicate a significant minority of companies will change their plans, but a substantial majority will keep them. The data also indicate changes in accounting rules will not affect stock prices and that broadly granted options are better for corporate performance than narrowly granted options.

This paper aims to identify the key lessons to learn from the US employee stock ownership plan (ESOP)-model. The lessons are, broad-based employee ownership is difficult to attain and sustain if employees have to use their own money to purchase shares. The paper works better when the shares are held in trust rather than being held individually. Broad-based employee ownership improves corporate performance and employee financial security. Employees care more about how employee ownership affects the stability of their jobs and retirement than having governance rights. If laws require democratic governance there will not be widespread employee ownership. Tax incentives are critical to induce companies and their owners to share ownership.

This paper is based on results from National Center for Employee Ownership research, a review of other research in the field, and the author’s own 45 years of experience in this field.

About one-quarter of the private sector workforce in the USA participates in some kind of employee ownership plan. There are 6,700 ESOPs in the USA with 14 million participants. The ESOPs hold over $1.4 trillion in assets. About 6,000 of these plans are in non-listed companies and the companies employ about two million people. Public companies ESOPs generally own under 10% of company stock; private company ESOPs usually own at least 30% of the stock and a majority of the plans own 100% of the stock. Most of these companies have between 20 and 500 employees.

The article gives a practitioner's overview over the main reasons behind the success of the ESOP model in the USA.

The paper studies the relationship between central features of the capital structure and terminations of ESOP plans in the US.

The research methodology is primarily based on reviewing the existing literature and includes elements of original comparative analysis.

We find that externally imposed repurchase obligation, the stochastic element to repurchase obligation and the discontinuous vesting of ICA shares undermines the sustainability of employee ownership in the Employee Stock Ownership Plan model.

Strengthening employee-owned firm the structural architecture of employee-owned firms (EOF) can help to improve sustainability of the socially preferable alternative in the market economy.

In light of the increasing global interest in employee ownership, our research underscores the need for institutional learning to adapt EOFs to contemporary economic environments.

Strengthening employee-owned firm the structural architecture of employee-owned firms (EOF) can help to build the case for the socially preferrable business ownership model for the market economy.

This paper contributes to the employee ownership literature by providing understanding of the role of capital structure in the US ESOP model and terminations of ESOP plans and suggesting some novel ideas in addressing the challenges.