The Impact of Employee Ownership

Employee stock ownership plans offer explicit financial advantages enshrined in the US Internal Revenue Code. But beyond the corporate tax deductions and capital gains deferrals lie a broader set of competitive and societal benefits.Employee owners accumulate wealth that outpaces their peers while their companies consistently outperform the market.

Decades of research demonstrate the transformative potential of ESOPs. A brief review of these research studies and scholarly reports illustrates the wide-reaching impact of employee ownership. 

Employee Ownership Enhances Work Environments

The motivational power of having "skin in the game" is well understood but rarely quantified. The strong identities and openly embraced cultures of ESOP-owned companies point to the importance of agency, but do these feel-good stories reflect authentic engagement? If so, does that translate to materially stronger workforces? 

Fortunately, the long-running General Social Survey (GSS) offers a consistent, credible data set to assess the sentiment of US workers, including employee owners. In 2017, the WE Upjohn Institute leveraged this longitudinal research to make a notable discovery.

Job satisfaction at employee-owned companies is consistently higher. 

In fact, surveyed employee owners were ~20-50% less likely to seek new jobs in the year ahead than their peers at non-employee-owned companies. Even in 2010 and 2014, after the Great Recession had depressed many employees’ share values, employee-owners were still more bullish on their companies compared to their non-ESOP counterparts.

The Employee Ownership Foundation’s 2019 analysis of GSS data indicates that non-employee owners also perceive the value of an ESOP. Survey respondents were presented with two similar, hypothetical jobs: one at a company with employee ownership/profit sharing and one with neither. Nearly 2/3 choose the job with ownership or profit incentives. These results were even consistent across political affiliations and ideological views.

Quit rates at ESOP-owned S corporations are nearly 1/3 the national average. 

That's according to a 2023 study of S-ESOP executives published by the National Center for Employee Ownership (NCEO). Those leaders also believe there's an appreciable difference in human capital management at an employee-owned company. Nearly 80% of respondents believed they were better equipped to retain and recruit staff than their non-ESOP competitors. 

Of course, employee ownership doesn’t guarantee workplace cohesion. Research has shown that supportive workplace policies are also correlated with these findings. Nonetheless, ESOPs help drive durable satisfaction metrics that foster stability.

Employee owners have significantly longer job tenures. 

A 2017 NCEO study compared 28- to 34-year-old employee owners with counterparts at similar, privately held firms. ESOP participants had median tenures of 5.2 years versus 3.4 years in the comparison group (a 53% increase). This disparity transcended gender, racial, and social-economic lines.

All this data correlates with anecdotal accounts. Employee owners often cite a deepened emotional investment in their companies. This pride-of-ownership fosters a sense of belonging and helps build positive work environments. Strong ownership cultures translate to workplace stability and desirability.

Even during the height of COVID-19, employee owners were over 3 times more likely to be retained by their firms. The EO Foundation’s October 2020 study also found that majority ESOP-owned companies maintained standard hours and wages at notably higher rates than non-employee-owned businesses.

Employee-Owned Companies Outperform Their Peers

It’s been said that a cohesive workplace is a productive workplace. Employee-owned firms frequently reflect that maxim. Multiple studies, dating back to the mid-1980's, have drawn clear linkages between employee ownership and the competitiveness and durability of ESOP-owned businesses. For many of these companies, broad-based ownership drives swift and sustainable competitive advantages.

On average, an ESOP-owned firm's productivity grows by 5% in its initial plan year.

The potential, immediate impact of employee ownership was demonstrated in a 1997 meta-analysis by Rutgers University’s Joseph Blasi and Douglas Kruse. Those findings were reaffirmed in a 2016 analysis of 102 studies with data from nearly 57,000 companies.

Overall, the output of employee-owned businesses is 2.4% greater than their peers.

A 2013 paper by Blasi and Kruse found sustained efficiency gains vis-à-vis their non-ESOP peers by employee-owned companies. The study noted that increased capacity was linked to the retention of skilled, knowledgeable employees.

Employee ownership also correlates to 2.3% sales growth relative to non-ESOPs.

This figure also comes from Blasi and Kruse’s 2013 research. The NCEO’s Corey Rosen and Michael Quarrey reported a similar finding in a 1987 Harvard Business Review article. Employee-owned companies’ sales were 3.8% higher on average than their pre-ESOP performance.

Employee-owned companies are 50% less likely to fail than non-ESOP peers.

Blasi and Kruse’s landmark 2013 study also compared the failure rates of employee-owned firms and their conventionally owned competition. Their conclusion: “ESOP companies were about half as likely… to disappear due to a clearly identified bankruptcy or closing (5.9% compared to 11.7%)... [and] less likely to disappear for other or unknown reasons (13.5% compared to 21.4%).”

Employee Owners Reap Financial and Quality of Life Benefits

It stands to reason that a prosperous ESOP-owned company would enhance the lives of plan members and their families. The NCEO’s 2017 study reflects that reality, offering clear comparisons between employee owners and their counterparts at non-ESOP companies.

• Employee owners earn 33% higher median income from wages
• They accumulate 92% higher median household net worth
• ESOP participants are more likely to have access to work benefits

Workers of color, low-wage employees, and single parents all fared better, on average, as employee owners. A subsequent study by the NCEO and the Employee Owned S Corporations of America (ESCA), published in 2021, reaffirmed these advantages.

ESOP balances are 2x greater on average than 401(k) balances at non-ESOP firms.

The research also noted that ESOP sponsors contributed 2.5x more to their retirement plans than companies that only offered 401(k)s. Controlling for variables including size, industry, and location, the advantage of ESOP participation is an estimated $67,000 more in retirement security.

Overall, leveraged ESOP plans and their account balances are on the rise.

CSG's 2025 analysis of Department of Labor Private Pension Plan data reveals the US gained 299 net-new leveraged ESOPs between 2020 and 2022. That represents the single largest expansion period for these plans in over two decades.

Middle-market companies appear to be at the vanguard of this trend. Between 2015 and 2022, the number of ESOP-owned companies with 250-499 employees grew by 10.5%; ESOP-owned firms with 500-999 employees increased by 16.4%.

Employee-owners average share of ESOP plan assets is also at an all-time high.

That figure reached approximately $175,000 per plan participant in 2022—up from the previous high of $166,000 in 2021. This increase reflects the increasing wealth-building potential of employee ownership.

ESOPs can Tangibly Benefit all Stakeholders

Employee ownership aligns interests and intertwines outcomes. ESOP plans help participants internalize their company’s challenges and successes, leading many to see their work as a career, not just a job. By doing so, they can reap clearly defined rewards for productivity and loyalty. Meanwhile, employee-owned businesses strengthen that value proposition with stronger benefits and stable work environments.

This partnership embodies ownership culture. Don’t write it off as a soft benefit. The effects are measurable, and the impact can be monetized. For many ESOP-owned companies, these advantages are as vital, if not more, than the associated tax incentives.