More than 6,300 companies in the United States are wholly or partially owned by their employees through an Employee Stock Ownership Plan, or ESOP. ESOPs cover nearly 15 million participants, including close to 11 million currently employed at a company with an ESOP. ESOPs exist in a wide variety of industries and markets—from manufacturing, to professional services, to retail.
The benefits ESOPs offer for employees and employers are well known. But what’s talked about less is the value that ESOPs bring to communities and the broader economy.
At a time when American institutions—from government to business—are placing a premium on efficiency and effectiveness, employee ownership offers a path to both.
What is an ESOP?
ESOPs are qualified retirement plans that companies establish to operate in the financial interest of their employees. Under the plans, employees receive shares of the company where they work. ESOP shares are owned exclusively by employees, with no outside shareholders.
The benefits to employees and employers
ESOPs bring many benefits to employees and employers. To highlight just a few:
- ESOP participants, known as employee owners, have more than twice the average retirement savings of non-employee owners ($170,000 vs. $80,000). They also have more than double the average net worth of non-employee owners ($577,000 vs. $246,000).
- For ESOP companies like Mathematica that have elected S corporation status (which allows them to reinvest tax savings back into their business), employee owners receive an estimated $67,000 more in retirement security than employees at the average business.
- Employee ownership generally improves company performance by aligning incentives between staff and leadership, leading to greater productivity and innovation. “ESOP firms often outperform their competitors,” explained Bill Castellano and Adria Scharf in a recent column. Castellano and Scharf are associate directors of the Institute for the Study of Employee Ownership and Profit Sharing in the School of Management and Labor Relations at Rutgers University.
The benefits to local communities
ESOPs sustain local jobs, because employee-owned companies are less likely to relocate outside of their communities. This stability, in turn, keeps wealth circulating in local areas.
When a business owner retires, an ESOP ensures their business will persist, without the owner having to look for outside buyers or consider closing their doors. “When a business owner establishes an ESOP, the shares are held in a trust,” added Castellano and Scharf. “This enables the employees to build wealth, and it keeps the business going if the owner retires.”
While no business is entirely immune to external factors, ESOPs tend to be more resilient. A 2023 survey from the National Center for Employee Ownership found that nearly 80 percent of leaders at S corp ESOPs believe employee ownership helps them manage economic disruptions. In the same survey, ESOP leaders reported that the voluntary quit rates of their employees were nearly one-third the national average.
The benefits to customers
ESOPs have been shown to be more efficient than non-ESOPs. Not only that, but there are proven examples of ESOPs performing better for their customers than non-ESOP firms. A 2024 study that looked at Contractor Performance Assessment Rating System (CPARS) scores found that federal officials rate firms entirely owned by ESOPs higher than all other firms.
This same study found that survival rates of 100 percent ESOP firms show these companies are more resistant to consolidation, suggesting federal contracting officials can confidently develop long-term business relationships with many 100 percent ESOP firms.
The economic benefits
Employee ownership is a proven tool for creating jobs and spurring economic activity. S corp ESOPs generate a collective $19 billion in economic value that would otherwise not exist.
S corp ESOPs produce significant macroeconomic impacts—including jobs, income, output, and tax revenue. Alex Brill, chief executive officer of Matrix Global Advisors, explained these effects in a 2013 report: “S ESOPs employ workers and make purchases from various types of suppliers. These suppliers in turn hire workers and buy from their own suppliers, and so on. In addition, S ESOP employees as well as the suppliers’ employees spend their disposable income in various ways, benefiting other businesses and in turn supporting other jobs. In addition, as these rounds of expenditures take place, the government collects sales, property, income, and other kinds of taxes.”
Brill found that S corp ESOPs initiated $27 billion in tax revenue in 2010—$11 billion for state and local governments and $16 billion for the federal government—and created or supported $246 billion in output. These findings, Brill added, show that ESOPs are “vital economic players in the United States.”
Pro-worker, pro-business, pro-growth
Republican and Democratic lawmakers alike recognize the pro-worker, pro-business, and pro-growth reality of ESOPs. During the last session of Congress, 102 members of the House and Senate sponsored the bipartisan Promotion and Expansion of Private Employee Ownership Act to incentivize employee ownership.
Employee-owned firms like Mathematica are reliable partners in delivering efficient, cost-effective solutions that drive results. ESOPs aren’t just good for employees and businesses, they’re a proven path to unleashing prosperity.
