| The global business community is recognizing the | | | | in major firms like United Airlines and Home Depot. |
| benefits of employee ownership, from tax savings to | | | | Thousands of smaller, closely held companies also |
| improved work performance, as more major firms | | | | sponsor ESOPs. Employees can own anywhere from |
| worldwide offer stock as compensation.This material is | | | | a few percent to 100 percent of the company.In |
| drawn substantially and directly from the National | | | | recent years, there has been an explosive parallel |
| Center for Employee Ownership, a nonprofit | | | | growth in employee ownership through 401(k) plans. |
| membership and information organization in Oakland, | | | | The major factor in this growth has been an increasing |
| California.Employees have become major players in | | | | tendency for companies to match employee |
| capital ownership worldwide through employee stock | | | | contributions to the plans with company stock. |
| ownership plans (ESOPs), according to a new analysis. | | | | Employees also are putting more of their own |
| Touted as the "the ultimate instrument of corporate | | | | investments in company stock. Recent estimates |
| finance," a well-designed ESOP successfully | | | | indicate more than half of all 401(k) matches are made |
| accomplishes major corporate goals to provide | | | | in company stock. It is estimated that there are at least |
| owners with a superb return on capital investment, | | | | 2 million participants in these plans, about 2,000 of |
| unequalled tax advantages and rewards long term | | | | which have a majority of their assets in company |
| loyal employees far better than the common | | | | stock. Employees own about $250 billion in company |
| retirement plans, such as 401(k) and profit sharing | | | | stock through 401(k) plans.Employees Prefer |
| plans. Rewards, such as stock appreciation, are | | | | StockPeople want stock as pay. More than 16 million |
| quantifiable, but there also is what can be called the | | | | employees now get stock as part of their pay. Why |
| "adventure reward."According to the Arizona ESOP | | | | does this number continue to increase? There are |
| Group LLC , employees who share in equity | | | | numerous reasons. |
| appreciation begin to think and act like owners, and | | | | Three of the more salient are:Tax incentives for |
| owners always work harder than employees do. To | | | | owners and their companies are unequalled by any |
| illustrate, Home Depot's stock ownership program | | | | other financial strategy.There is a growing corporate |
| created more than 1,000 millionaires in 1998, according | | | | desire to create an "ownership culture" - owners |
| to Bernard Marcus, cofounder of Home Depot. | | | | always work harder than employees.Employees are |
| Statistics reveal that 17 to 18 million U.S. employees | | | | asking for it.In the past 25 years, the stock market is |
| now own from $650 million to $1 trillion in stock through | | | | up more than 11 times, while the real median wage is |
| employee stock ownership plans, 401(k) plans and | | | | up a few percentage points. Business owners and HR |
| broad-based stock options, and the appreciation | | | | professionals should take note: Employee equity |
| potential is dramatic.Global GrowthThe worldwide | | | | participation will be a major theme in the 21st century. |
| business community is recognizing the beauty of | | | | The federal govern-ment recognizes this and |
| sharing equity with employees. As impressive as the | | | | encourages businesses to become ESOP sponsors |
| growth of employee ownership in the United States | | | | by creating working capital by enjoying tax deductions |
| has been, there have been even more striking | | | | for contributions of stock to their ESOP. Using an |
| developments abroad. The most important are:Russia: | | | | ESOP to borrow affords the unique advantage of tax |
| Most large enterprises in Russia have been sold to | | | | deducting principal payments as well as interest.Finally, |
| their work forces, while thousands of other businesses | | | | there has been rapid growth in companies making |
| have become employee owned in other formerly | | | | stock options available to most or all employees. Most |
| socialist countries. Enterprises with more than 200 | | | | technology companies that use stock options now |
| employees have been sold primarily to their work | | | | make them available to most or all employees, |
| forces. The average ownership by nonmanagement | | | | according to recent surveys from Share Data, a stock |
| employees is about 55 to 65 percent. Employees hold | | | | options plan administration firm. This is another method |
| their stock as individuals and, so far, relatively few | | | | of building employees into equity participation, but |
| have decided to sell. In the future, many of these | | | | without the same preferential tax benefits enjoyed by |
| enterprises are likely to be sold in whole or in part to | | | | both ESOP sponsors and employee participants.At the |
| investors or other companies unless legal changes are | | | | same time, more and more major companies, such as |
| made.China: Millions of employees are becoming | | | | Pepsico, Starbucks and Whirlpool, are giving options to |
| owners in their companies, and both the central and | | | | most of their employees. While firm estimates are not |
| local governments are seriously exploring the idea of | | | | possible, it appears that at least 5 million employees |
| large scale enterprise reform through employee | | | | participate in these plans. This is a potential value in the |
| ownership. Several local governments have sold off | | | | hundreds of billions of dollars.The trend toward |
| most of their enterprises to employees, and the central | | | | employee ownership is being fueled by three factors. |
| government now is seriously investigating implementing | | | | First, where employee ownership has been around |
| employee ownership on a wide scale.Eastern Europe | | | | long enough to study, especially in the United States, |
| and Former Soviet Republics: Most of these countries | | | | data clearly and continually shows a strong positive |
| have provisions to encourage at least minority | | | | relationship with corporate performance when these |
| employee ownership in privatized enterprises. In some | | | | plans are tied to a participative management |
| countries, particularly Slovenia, Hungary and Poland, | | | | philosophy. More and more companies are concluding |
| hundreds of enterprises have become majority | | | | that sharing ownership and encouraging employee |
| employee owned.England: Legislation similar to U.S. | | | | input makes good economic "dollars and sense." |
| ESOP law has been in place since the late 1980s. | | | | Second, the privatization of state owned enterprises is |
| Recent changes have made it more attractive and | | | | more politically palatable if employees are included as |
| several hundred companies now have broad | | | | owners. Finally, to encourage businesses to sponsor an |
| ownership. A few dozen large companies now are | | | | ESOP, the federal government offers tax savings and |
| majority employee owned.Canada: Most Canadian | | | | cash advantages too rich to overlook.American |
| provinces have legislation providing substantial tax | | | | Compensation Association Journal, |
| credits (up to 40 percent) for investment in employer | | | | February, 2005For 25 years Frank Amato has been |
| stock. Several hundred companies have taken | | | | designing ESOPs and carving out key employee plans. |
| advantage of this process.Jamaica: A 1994 law in | | | | He is Managing Member of the Arizona ESOP Group, |
| Jamaica provides strong incentives for companies to | | | | LLC and can be reached at (480)222-0199 and |
| share ownership with employees.Japan: Ninety percent | | | | (480)227-3064.Frank A. Amato, President |
| of Japan's publicly traded firms provide mechanisms | | | | Arizona ESOP Group LLC. |
| for employees to buy company stock. Participation in | | | | An Employee Stock Option Plan Consulting |
| these plans extends to most employees, and the | | | | FirmGraduate 1970 from Michigan State University, B.S. |
| average per-employee holding is about $16,000. | | | | in Economics.From 1970 through 1976, Captain U. S. Air |
| However, these plans generally result in employees | | | | Force, fighter pilot during the Vietnam era.Member, |
| owning only about two to three percent of their | | | | National Center for Employee Ownership (NCEO).He |
| firms.ESOP BeginningsThe trend toward employee | | | | has spoken before the Arizona State Legislature |
| ownership started in the United States in the 1970s, | | | | Senate Finance Committee and has written numerous |
| when ESOPs were given specific tax benefits and | | | | articles for various local and national business |
| regulatory guidelines. Today, more than 11,000 of these | | | | publications.Visit message on ESOPs at: |
| and similar plans cover almost 9 million employees who | | | | message from Frank A. |
| own about $213 billion in assets. ESOPs can be found | | | | |