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