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The Zeese for Senate Campaign presented a 'Ways that Work' Award to the Maryland Brush Company on March 21 as part of our Solutions Tour of Maryland. The award was presented to the board and 27 employee-owners of the Maryland Brush Company in order to highlight the importance of supporting employee-ownership of corporations.
The Maryland Brush Company is 100% employee owned and the employees play a major role in selecting the Board of Trustees for the company. The company was founded in 1851 as Paint and Maintenance Brushes Company and became an employee owned business in 1990 and changed its name to the Maryland Brush Company. Maryland Brush is a premier manufacturer and supplier of engineered and standard brush products to all manufacturing sectors of industry. Their focus is the design, development, manufacture and distribution of power brushes, maintenance brushes and paint applicators. They have had 150% stock increase over the past two years showing, as research has shows, that employee ownership is not only good for employees but good for business.
Employee-owned businesses should be the future of American corporations as part of an effort to transition the United States to an ownership society – a society where all Americans can share in the wealth of this great nation. Treasury Secretary John W. Snow has suggested that the Employee Stock Ownership Program (ESOP) be ended so it is important to highlight the success of employee ownership in order to prevent such a mistaken policy decision.
There are now more employee owners in the United States then there are private sector union members with 11,000 employee owned businesses in the U.S. holding assets of $400 billion. The total worker holdings, according to the National Center for Employee Ownership (NCEO) was $800 billion in 2002 – 8% of U.S. corporate stock.
A survey in Washington State found that employees in employee owned firms earn 12% greater median pay that non-employee comparable owned firms. Also, worker owners ended their careers with three times the retirement benefits. Employee ownership has also resulted in less bankruptcy, greater profit and more rapid stock growth then for similar non-employee corporations.
One of the oldest and fourth largest employee-owned businesses in the United States is SAIC. They describe themselves as creating "a company of entrepreneurs." They started as a small company now with annual revenues of more than $7 billion. SAIC's founder, J. Robert Beyster, Ph.D, says its employee-owners are entrepreneurs "Not just one or two at the top, but a company in which those who are motivated and capable can organize, manage, and assume the risk of different aspects of the company. In return they receive not only salary, but ownership of the company."
The largest study of employee-ownership, a 2000 study by Joseph Blasi and Douglas Kruse at Rutgers University, found that ESOP companies grow 2.3% to 2.4% faster than would have been expected without an ESOP for sales, employment, and sales per employee.They also found a 14.8% improvement in productivity. A 1987 NCEO study of 45 ESOP and 225 non-ESOP companies found that companies that combine employee ownership with a participative management style grow 8% to 11% per year faster than they would otherwise have been expected to grow based on how they had performed before these plans. Subsequent studies by the General Accounting Office and by academics in Washington State and New York found the same relationship, according to NCEO.
Majority ownership in employee owned businesses is increasing – giving employees greater powers – 38% of ESOP's in 1989 to 68% in 2000 had a majority of their ownership by employees. As Business Week observed in 1991 workers “who own a significant share of their companies will want a voice in corporate governance.” The Maryland Brush Company provides an excellent model of how employee-owners can influence management of the company they own.
Several studies show the greater the level of employee participation the greater the level of productivity. Democratization of the workplace – giving employees more power as employee-owners – is the future – a future that is better for employees and corporations. Theory O management style comes from a midsized employee-owned manufacturing company called Web Converting. The idea of Theory O is that the company will succeed only when workers feel like – and act as – owners. This theory of management challenges the division between workers and owners viewing them as developing into a unit.
Employee ownership has been supported across the political spectrum. Conservative congressman Dan Rohrbacher introduced the Employee Ownership Act of 2001 which had as the goal 30% employee owned businesses by 2010. The bill would have created the Employee Owned and Controlled Corporation.
Similarly, Sen. Bob Dole in 1984 in response to Sen. Russell Long's call for an amendment to a bill to support employee ownership said before the unanimous vote in support of employee ownership: “I don't know much about ESOP's but Russell reminds me that when people own property they vote Republican, and I'm for that.” Russell Long put it differently saying “The problem with capitalism is that it doesn't create enough capitalists.”
The importance of all Americans participating in an 'ownership society' goes back to Thomas Jefferson. In his draft of the Virginia Constitution he included a provision that every person of voting age “neither owning or having owned 50 acres of land shall be entitled to an appropriation of 50 acres.” He understood that a democracy based on private property rights required a democratic economy.
It is time for us to replace wage-slaves with employee owners as a step in the direction of a real ownership society so that working Americans can participate in capitalism and have some control over the future of their employment.
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Below is additional information from the National Center on Employee Ownership
A Statistical Profile of Employee OwnershipUpdated November 2005Estimated Number of Plans and Employees; Value of Plan AssetsType of Plan
| Number of Plans
(as of 2005)
| Number of Participants
(as of 2005)
| Value of Plan Assets
(as of 2005)
| ESOPs, stock bonus plans, & profit sharing plans primarily invested in employer stock
| 11,500
| 10 million
| $500 billion+
| 401(k) plans primarily invested in employer stock
| 2,200
| 4 million
| $75 billion+
| Broad-based stock option plans
| 4,000
| 8 million
| (several hundred billion; not realistic to estimate)
| Stock purchase plans
| 4,000
| 13 million
| (not realistic to estimate)
|
Growth of ESOPs and Equivalent PlansYear
| Plans
| People
| 1975
| 1,600
| 248K
| 1980
| 4,000
| 3.1M
| 1990
| 8,080
| 5M
| 1993
| 9,225
| 7.5M
| 1996
| 10,670
| 8.7M
| 1999
| 11,400
| 8.5M
| 2005
| 11,500
| 10M
|
Growth of Total ESOP Plan Assets
1990
| $133 billion
| 1994
| $184 billion
| 1995
| $226 billion
| 1998
| $350 billion
| 2001
| $400 billion
| 2005
| $500 billion
|
The above table is based on data released by the U.S. Department of Labor, with updated NCEO estimates. Percentage of Company Stock Owned by Employee Ownership PlansCategory
| 0-10%
| 11-30%
| 31-50%
| 51-100%
| Private co. ESOPs
| 20%
| 20%
| 30%
| 30%
| Public co. ESOPs
| 62%
| 34%
| 3%
| 1%
| 401(k) plans
| 85%
| 10%
| 5%
| 0%
| Stock options1
| 32%
| 65%
| 3%
| 0%
|
1 Percentage is for overhang from options (outstanding, unexercised options plus shares available for future grants, divided by common shares outstanding).
Data for this table were drawn from surveys in Ohio and Michigan in 1994 and 1990, a 1995 NCEO survey of 401(k) plans, a 2000 NCEO survey of companies with broad-based stock option plans, and NCEO databases.
Stock option figures are estimates of the percentage of total outstanding company stock that the options represent. Percentages are higher in smaller companies and high-technology companies. We do not have an estimate for employee stock purchase plans. Employee Ownership and Corporate PerformanceStudies on the relationship between employee ownership and corporate performance are primarily limited to ESOPs, both because data are easier to obtain on these companies and because they tend to be more committed to employee ownership than 401(k) plan sponsors, whose plans tend to still own relatively small amounts of the equity of individual companies. The phenomenon of granting stock options to most or all employees is relatively recent and has yielded just one major analysis so far. The principal findings on employee ownership and corporate performance are:
ESOPs and Corporate GrowthA 2000 study by Joseph Blasi and Douglas Kruse at Rutgers Univerity found that ESOP companies grow 2.3% to 2.4% faster than would have been expected without an ESOP for sales, employment, and sales per employee. The study looked at all ESOP plans set up between 1988 and 1994 for which data was available. A 1987 NCEO study of 45 ESOP and 225 non-ESOP companies found that companies that combine employee ownership with a participative management style grow 8% to 11% per year faster than they would otherwise have been expected to grow based on how they had performed before these plans. Subsequent studies by the General Accounting Office and by academics in Washington State and New York found the same relationship. A 1999 study for Hewitt Associates by Hamid Mehran of Northwestern University found that the returns on assets for 382 publicly traded ESOP companies was 2.7% per year greater than what a model of their predicted performance would have been.
Studies on participative management alone find a small positive impact on performance, but not nearly enough to explain the synergy between ownership and participation these other studies have found.
ESOPs and Stock Price PerformanceData compiled between 1992 and 1998 as part of an ongoing study by Joseph Blasi, Douglas Kruse, Michael Conte, and after 1993, American Capital Strategies, found that an investment of equal amounts in a basket of securities in public companies with more than 10% broad employee ownership would see a return of 170% compared to 143% for the Dow and 152% for the S&P 500. The researchers point out that this does not establish a causal linkage between employee ownership and stock performance because companies that set up these plans may also have certain other consistent features that make them perform better.
ESOPs and BankruptcyA 1995 study by Michael Conte at the University of Baltimore found that during the 1980s, fewer than one out of 100 ESOPs were terminated because of the bankruptcy of the plan sponsor.
Stock Options and Corporate PerformanceA 2000 study by Douglas Kruse, Joseph Blasi, Jim Sesil, (all of Rutgers University) and Maya Krumova (New York Institute of Technology) used data from the 1998 version of the NCEO's "Current Practices in Stock Option Plan Design" study. That study provided usable data for 105 companies that made options available to most or all employees. Ninety-one percent of the sample companies were publicly traded; the results here apply only to these companies. The option companies were compared to all non-broad based stock option companies in their industries of similar size (the full sample group) and to paired comparisons of matched non-broad based stock option companies (the paired sample).
Blasi et al. found that productivity rates did improve with the institution of a plan. The difference between productivity scores for the overall sample from the pre-plan period (1985 to 1987) to the post-plan period (1995 to 1997) was 14.8% when the comparison group was all non-option companies and 16.8% when looking just at paired comparisons between option companies and otherwise similar non-option companies. Sampling error can be strongly rejected as an explanation for these results. Return on assets showed a similar pattern. Here the stock option companies showed an improvement of 2.5% on ROA relative to the full sample in the post-plan period compared to the pre-plan period. When just paired comparisons are used, the improvement was 2.05%. Again, sampling error is very unlikely to have caused these results. Total shareholder return, however, showed no statistically significant difference in the relative performance during the two periods, meaning any measured change could simply reflect random sampling error. The researchers thus believe that the any value consequences of dilution caused by broad-based options seems counterbalanced by increased productivity.
Basic Characteristics of ESOPs% of Private Companies Passing Through Full Voting Rights
| 20%
| % of Majority-Owned Private Companies Passing Through Full Voting Rights
| 40%
| Mean % of Allocation to Accounts, Private Companies
| 8-10%
| Mean % of Allocation to Accounts, Public Companies
| 4-6%
| Median Number of Employees, Private Companies
| 125
| Mean Number of Employees, Private Companies
| 1,460
| Median Number of Employees, Public Companies
| 2,100
| Mean Number of Participants, Public Companies
| 13,984
| Percentage of ESOPs That Are in Public Companies
| 5%
|
Data for this table were compiled from Ohio and Michigan studies, NCEO databases, and studies by Michael Conte at the University of Baltimore.
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