Should the Federal Gov’t Fund Programs Promoting Employee Ownership? (S. 1666)

What is S. 1666?

(Updated September 20, 2019)

This bill — the Worker Ownership, Readiness, and Knowledge (WORK) Act — would create an Employee Ownership and Participation Initiative within the Dept. of Labor’s Employment and Training Administration (ETA). It would authorize ETA to award grants to employee ownership and participation programs throughout the country for 1) education and outreach; 2) participation training; 3) technical assistance, including prefeasibility studies, and support for the carrying out of third party feasibility studies and preliminary business valuations; and 4) activities facilitating cooperation amongst employee ownership firms. 

The employee ownership programs would be intended to: 

• Provide outreach to inform about employee ownership, business ownership succession and employee participation;
  
• Provide technical assistance to employees seeking to become owners or start new employee-owned businesses and to business owners considering selling to their employees; and
  
• Provide training activities in the various aspects of employee participation.

Grants would be limited per grantee as follows: 

• $300,000 in FY2020
  
• $330,000 in FY2021
  
• $363,000 in FY2022
  
• $399,300 in FY2023
  
• $439,200 in FY2024

The authorized appropriations for grants under this bill are: 

• $3.85 million in FY2020
  
• $6.05 million in FY2021
  
• $8.8 million in FY2022
  
• $11.55 million in FY2023
  
• $14.85 million in FY2024

These appropriation levels would allow 12 employee ownership grants in FY2020, 22 in FY2021 and 31 in FY2022.

Argument in favor

At a time of wage stagnation, employee ownership in companies is a way to help workers become more financially stable and build more wealth. Employee-owned companies are stronger, more likely to treat their workers well and less likely to outsource jobs overseas.

Argument opposed

The literature on employee-owned companies’ performance is mixed; so it’s hard to sure that employee ownership is the best thing to promote from a business perspective. Additionally, given that many Americans already have ownership in their companies through stocks, pensions and other plans, it’s not clear how necessary this bill is.

Impact

Employees; businesses; employee ownership in businesses; promotion of employee ownership; and the Dept. of Labor.

Cost of S. 1666

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Sen. Bernie Sanders (I-VT) introduced this bill to provide over $45 million in funding to states to establish and expand employee ownership centers to provide training and technical support for programs promoting employee ownership: 

“By expanding employee ownership and participation, we can create stronger companies in Vermont and throughout this country, prevent job losses and improve working conditions for struggling employees. 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."

When he introduced this bill in the 115th Congress, Sen. Sanders said: 

“Instead of giving huge tax breaks to corporations who shut down in the United States and send jobs abroad to low wage countries, we must invest in creating worker-owned companies. When employees own their own companies, when they are involved in the decision-making that impacts their jobs, the results are almost always positive – absenteeism goes down, worker productivity goes up and people stay at their jobs for a longer period of time. When workers are respected on the job as full human beings who can help make the decisions for a profitable company, morale goes up. Employee-owned companies will not provide starvation wages to workers and huge compensation packages to CEOs. They will not allow for unsafe working conditions. They will not shut down and send their own jobs to China. In fact, study after study has shown that employee ownership increases employment, increases sales and increases wages in the United States… By giving worker-owned businesses the tools to succeed and educating retiring business owners and employees about the benefits of worker ownership, we can allow the employee-ownership model to realize its true potential and create an economy that works for all of us, not just the 1 percent.”

Sen. Sanders adds that empowering workers is part of democracy:

“We can move to an economy where workers feel that they're not just a cog in the machine—one where they have power over their jobs and can make decisions. Democracy isn't just the opportunity to vote. What democracy really means is having control over your life."

When this bill was introduced in the 115th Congress, Rep. Mark Pocan (D-WI), who is this bill’s House sponsor in the current Congress, said:

“With 29 years of experience as a small business owner, I've seen firsthand how both businesses and workers benefit when growth is shared between labor and management. Employee stock ownership plans are an excellent way to promote shared prosperity. I'm proud to be an original cosponsor of the WORK Act in order to help the Department of Labor promote employee-ownership while also ensuring that workers' rights are protected.”

David Fitz-Gerald, former chair of the ESOP Association and CFO at Carris Reels, a 100% employee-owned manufacturing company based in Rutland, Vermont, says that increasing employee ownership “creates and maintains more productive companies that sustains American jobs at a higher rate than do conventionally owned companies.”

This bill has seven Democratic Senate cosponsors in the 116th Congress. Its House companion, sponsored by Rep. Mark Pocan (D-WI), has one cosponsor, Rep. Donald Beyer (D-VA). As of August 2, 2019, neither bill had received a committee vote.

In the 115th Congress, this bill had six Democratic Senate cosponsors. Its House companion, sponsored by Rep. Jared Polis (D-CO), had three Democratic House cosponsors. Neither bill received a committee vote.  

Of Note: According to a Rutgers University study, employee ownership increases company productivity by 4%, shareholder returns by 2% and profits by 14%. Joseph Blasi, director of the Rutgers University Institute for the Study of Employee Ownership and Profit Sharing, notes that “looking at employee ownership and profit-sharing is a compelling way for the middle class to get a share of the benefits of ownership” as wages remain largely stagnant.

Over the period 1974-1974, employee stock ownership plans (ESOPs) helped the number of partially- and fully-employee-owned companies in the U.S. grow from ~1,600 to ~8,100. In a 45-ESOP and 238-comparable company study published in the September 1987 issue of the Harvard Business Review, Corey Rosen and Michael Quarrey found that ESOP companies grew faster than comparably-sized businesses and provided meaningful returns to employees who bought into them.

However, in their 2005 working paper “When Labor Has a Voice in Corporate Governance,” Olubunmi Faleye, an assistant professor of finance and insurance at Northeastern University, and Vikas Mehrotra and Randall Morck, both members of the finance faculty at the University of Alberta, reported that companies with significant levels of employee control systematically underperform, in large part because workers can hold management hostage to their short-term concerns. Using a broad range of financial measures for over 2,100 companies from 1995-2011, the researchers found that employee-controlled companies underperformed on several measures, including Tobin’s q (a common measure of shareholder wealth creation), productivity, sales per employee and total-factor productivity growth. They also found that companies with significant levels of employee ownership typically had less long-term investment as well as lower risk (and consequently lower growth). 

In 2015, 32 million Americans owned stock in their companies through pension and profit-sharing plans and share-ownership and share-option plans. 

Media:

• Sponsoring Sen. Bernie Sanders (I-VT) Press Release (116th Congress)
  
• Sponsoring Sen. Bernie Sanders (I-VT) Press Release (115th Congress)
  
• The Economist (Context)
  
• MIT Sloan Management Review (Context)