Employee Ownership Beyond Counterculture: PGH & Beyond

Bulk bins, Birkenstocks, and beans are often what come to mind when “co-op” is mentioned. Historically connoted with the alternative food movement that gained popularity during the 1970s, worker cooperatives—just one form of employee ownership but perhaps the most well-known—actually arose during the industrial revolution of the late 18th to early 19th century as part of the labor movement. As machines replaced humans and increased the speed and efficiency of production, many workers fought against what they saw as an unchecked capitalistic depreciation of labor and sought to reclaim ownership of their individual industry. Not limited to food, workers in nearly all of the leading trades started self-managed businesses: foundrymen, coal miners, shipbuilders, blacksmiths, and printers.  Even women in the home textile trades organized, with the Rochdale Society of Equitable Pioneers, established in 1844 England, often cited as the basis for the modern cooperative movement.

 Employee ownership can take many forms and is defined as a business model in which employees collectively own a percentage of the business for which they work. Generally, they are values-driven organizations that put worker and community benefit at the core of their purpose. As issues of social responsibility and sustainability gain increased visibility, it’s no surprise many companies both large and small are looking to employee ownership models as alternatives to the mainstream.

Employee ownership:
+ Boosts levels of employee engagement
+ Increases productivity
+ Provides a succession plan
+ Offers tax incentives for the business
+ Strengthens communities and local economies
+ Fights the wealth gap and provides real retirement savings

Worker cooperatives, where employees both own and govern through a one-employee-one-vote model, are but one type of employee ownership.

Others include:
+ Stock options/restricted stock options whereby employees are given the right to buy a certain number of shares at a fixed price for a defined period of time, with “restricted” options requiring either prolonged employment or achievement of certain performance targets
+ Phantom stock which pays a future cash bonus based on the value of a certain number of shares
+ Performance shares that pay out only when specific individual or group performance targets are reached
+ Employee stock ownership plans (ESOP) give employees of a company an ownership interest through shares allocated to them; the shares are held in a trust until payment is due upon employee retirement or exit

Rosalie Evans, Marketing Services Coordinator at Pennsylvania Center for Employee Ownership

ESOPs are one of the main focuses of the Pennsylvania Center for Employee Ownership (PaCEO), where Marketing Services Coordinator Rosalie Evans makes it her mission to assist businesses in Pennsylvania in understanding employee ownership and its benefits. “We are educators,” she explains. “Our goal is to teach people and provide resources.”

An ESOP is an employee benefit plan that turns your business team into business owners by issuing stock. “Basically,” Evans begins, “an owner can sell some or all of a business to their employees and the employees pay nothing. The ESOP borrows the funds needed to pay for the stock in the form of a bank loan or other loan provision. Once that loan is paid off, the business can use funds from tax savings in growth initiatives.”

Meanwhile, the ESOP trust holds the acquired stock for the benefit of employees under the plan of an outside administrator. Employees’ accounts within the trust accumulate shares of the company based on various formulas, and employees receive the cash value of the shares (based on an independent valuation of the company) in their account upon leaving the company, often when they retire.

How ESOPs work

“Lots of businesses could benefit from ESOPs in many different ways,” Evans says. Some owners aim to build a strong workplace culture, thus increasing productivity and efficiency. “If people are given a stake in the company and know that every minute they spend there—and every dollar they spend on the company’s behalf-—is going to be more or less in their pocket, they are going to be more engaged. They will care more if they are given a reason to care.”

Considerations of legacy planning may draw interest from others. “You’re getting older and want to retire; what are you going to do with your business? Rather than closing or selling to a competitor, we want people to know that this is another option. The company can stay in business, in your community, and people can keep their jobs.”

Tax benefits are often another factor in adopting ESOPs. Employee contributions (purchases of stock) are tax-deferred, stock donated to the plan by the company is tax-deductible, and stock sold through an ESOP is sheltered from capital gains tax. “If you sell 100% of the business in an ESOP, you don’t pay any tax on profits. Those tax savings pay off the loan, and once the loan is paid, the remaining tax savings is just extra money for the company.”

Community benefits are the most meaningful for some. Employee-owned businesses tend to create stable jobs, act as a catalyst in moving towards sustainable business practices and develop linkages among different parts of the social economy. “My background is in economic and community development,” Rosalie goes on. “I think a lot about spreading the wealth to the people who are doing the labor every day. I want to encourage more meaningful and better-paying jobs for the people in and around Pittsburgh.”

While PaCEO continues to connect interested businesses to experts in ESOPs, Evans has of late been focusing her work on exploring worker cooperatives. Still very much in the research phase, Evans is excited for the potential this other model of employee ownership has for creating some interesting synergies in Pittsburgh. “Communities where there’s a lot of cooperative development seem to have a lot of organizations set up to help; my goal is to find institutions here who’d be interested in supporting these other models.”

Traditionally there has been a strong cooperative presence in food production, but there has also recently been growth in the technology, home care, and service sectors. Pittsburgh, it seems then, is ripe for exploration on this front. As the employee ownership movement grows, it becomes increasingly aligned with the larger sustainability movement—and a part of building a new economy based on people, not just profits.

Rosalie Evans can be found right here on Chatham’s Shadyside campus, where PaCEO has its Western PA office. More information can be found at The National Center for Employee Ownership.

 

Tricia Wancko is an MBA/Masters of Food Studies candidate who is just as interested in cuisine and anthropology as she is in the economic and political structures that shape our food system. With over a decade of experience in hospitality and entrepreneurship, she’s interested in broadening her toolkit here at Chatham to do her part in helping to rebuild regional food economies. She holds a BS in Communication from Boston University with a focus on design and has over a decade of experience in NYC fine dining restaurants, tourism and events in New York’s Hudson Valley and Catskill Mountains, food entrepreneurship, and small-scale farming. Grateful for her past hands-on opportunities, she’s enjoying taking advantage of all Chatham has to offer.

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