> VEOC to Hold Seminars for Business Advisors
The Vermont Employee Ownership Center will be holding seminars in three locations around the state designed to educate business advisors about the basics of employee ownership. Specially designed for attorneys, CPAs, bankers, trust officers, and other professional advisors. "ESOPs & Succession Planning: A Technical Introduction to Employee Ownership for Business Advisors," will give attendees the tools necessary to advise their clients about employee ownership as an option for their business succession plan. Click here for more information or to register online. Sponsored by SES Advisors.
> Loan Fund Available for Employee-Owned CompaniesDates and Locations:
- September 18th in Burlington
- October 7th in Brattleboro
- October 21st in Manchester
Did you know that there is a new specialized loan
fund for employee-owned companies? The Vermont Employee Ownership Loan
Fund helps fund businesses that are already employee-owned, businesses
that are becoming so through the purchase of stock or business assets, and start-ups that
will be substantially owned by all of the employees. Proceeds may be
used for fixed assets, working capital, financing of
worker shares in cooperatives or the funding of ESOPs. Click here for more information and an application.
New Research Analyzes the Benefits
and Costs of S-Corp ESOPs
Compared to other forms of employee ownership, S-corp ESOPs have received little academic attention since their inception 10 years ago. But now, a comprehensive analysis of the benefits and costs of S ESOPs has been published by the University of Pennsylvania. Authors Steven Freeman and Michael Knoll have drawn on the extensive existing literature to analyze the benefits and costs of S ESOPs to employees, to firms, and to society at large. What follows is a brief synopsis of their findings.
- S-Corp ESOP contributions total approximately $14 billion per year. Average annual ESOP contributions range from $2,510 to over $6,000, with average contributions in private firms ranging between 8% – 10% of pay. Therefore, the authors estimate that contributions corresponding to 9% of pay would average $3,735 per participant, or a total of $14 billion, which represent additional compensation that would not have been paid without an ESOP.
- Increased employment stability attributable to employee ownership saves nearly $3 billion per year. There are approximately 3.7 million S ESOP employees nationally. The authors contend that a 1% reduction in job loss (with each job loss resulting in an average cost of $50,000) will result in a total savings of $1.8 billion annually. Assuming half of those who would have lost their jobs were forced to relocate at an average cost of $60,000, another $1.1 billion would be saved annually. Thus, the authors estimate that the total annual financial savings due to increased job stability attributable to employee ownership is nearly $3 billion.
- Accumulated stakes in company stock lead to additional annual accruals of $34 billion. Average existing ownership stakes in ESOPs are nearly $83,000. Assuming an average annual stock market return of 11% – and indications are that ESOPs outperform the market – that amounts to an annual gain of $9,100 per participant, or $34 billion total per year.
- Employee ownership results in annual productivity and sales gains of $33 billion. Studies indicate that employee ownership correlates with productivity gains of 4%, which go straight to the bottom line. Depending on how productivity is measured and a firm's profit margins, adopting an ESOP would allow an S corp that had been earning 8% profits to increase profit margins to between 10% and 12%. Assuming average (mean) firm size of $250 million and an average cost basis of 70% of revenues, this amounts to approximately $7 million increased average profits per firm, or an aggregated savings of approximately $26 billion. Studies also show that ESOPs enjoy nearly two and a half percentage points greater annual sales and employment growth compared to conventional counterpart firms. Assuming an average firm size of $250 million and average gross margins of 30% of revenues, a 2.5% increase in sales will result in increased average profits of $1.9 million per firm, or an aggregated total of approximately $7 billion.
- Shareholder return is higher for employee owned firms than for comparable firms. A survey of 70 empirical employee ownership studies indicates that even after giving up an average of 8% of their shares to employees, preexisting owners are able to increase their return by 2% annually. This improved return comes from both reduced costs and increased revenues.
- S ESOPs create approximately 85,000 new jobs annually. One study found that S ESOPs created jobs at a much more rapid rate – 2.3% annually, or a total of 85,000 jobs per year.
- Employee-owned firms survive longer than comparable firms. Several large‐scale studies show that employee‐owned firms are significantly less likely than their counterparts to go bankrupt or disappear for any reason at all.