There’s a tradition at Cleveland’s Great Lakes Brewing Company. Each day around 4 o’clock, employees gather in the brewpub for a complimentary “shift beer.” It’s a chance to celebrate the fruits of their labor. Soon though, the employees at the 30-year-old company will be getting a new perk, probably worth a lot more than a free drink.
By the end of this year, it’ll be one of the latest companies to form an Employee Stock Ownership Plan, or ESOP. Basically, it goes like this: work at a company for a while and eventually own it. Or at least a nice chunk of it.
Currently, nearly 7,000 businesses in the U.S. have them, and a recent survey by the ESOP Association suggests that companies that do may see their employees become more productive as a result.
In the coming months, Great Lakes will get appraised and divided into shares. Over time, those shares will be transferred to the company’s 200-plus employees.
Over a pint of stout, Becca Ritterspach, Great Lakes’ HR Specialist, says the prospect of being an employee/owner makes her feel more invested in her job “… not only because, we have this feeling of actual ownership in the company, but it's nice to work in a place where the owners trust you with that.”
Jason DeRivera, who works on the bottling line, agrees. “There's a knowledge of when I see the profit statements for the year, I know part of that is mine,” he said.
Great Lakes’ employees don’t know yet what their shares will be worth. However, researchers at Rutgers University say employees at ESOP companies hold, on average, $134,000 in equity.
A breakdown of ESOPs by industry, based on an analysis of data from the Department of Labor. [National Center for Employee Ownership]
The ESOP as a Succession Plan
“An ownership mentality can make a difference in a person’s view of things,” said Michael Keeling, President of the ESOP Association. Recently, the association surveyed owners of more than 180 ESOP companies, and two-thirds of them said their workers were more productive after implementing the plan.
However, for Pat and Dan Conway, the co-owners of Great Lakes Brewing, the decision to give employees stock wasn’t about juicing profits, said CEO Bill Boor. Rather the brothers were concerned about succession planning. They wanted the company to continue after they step away, but didn’t want to sell to a larger company, as has happened with dozens of craft breweries in recent years.
“The craft beer business as an industry has gone through a lot of merger and acquisition activity,” Boor said. “This is a significant statement about staying independent.”
The option to sell the company to something other than a larger entity or a private equity is appealing for some owners, said Corey Rosen, founder of the National Center for Employee Ownership (NCEO), a pro-ESOP think tank.
“A lot of owners who look at their options say, ‘Well, you know, I could sell to somebody else, but I’d really rather see this company continue with the people who helped build it,” he said.
When the owners of Great Lakes Brewing announced their intent to create an ESOP this past summer, they printed a set of special beer bottle labels to mark the occasion. [Great Lakes Brewing Company]
It also doesn’t hurt that ESOPs come with tax benefits for companies and employees. That helps workers build a nest egg, he said.
“Typically, people when they start to get into their 50s and 60s, they don’t have enough money to retire,” he said. “What ESOPs do is it provides a way for people to build wealth.”
An Early Example of Employee Ownership in Ohio
It's worth mentioning here that the concept of employee ownership has deep roots in this country. In fact, it has a history in Ohio.
In the late 1800s, there was a little company in Cincinnati that sold soap and candles … called Procter & Gamble. At the time, the labor movement was in full churn. Unions were forming, workers were striking.
A 1905 stock certificate from Procter and Gamble. [P&G]
In response, the owners of Procter & Gamble decided that one way to avoid employee unrest was to give them a stake in the firm. So, in 1887, the P&G started a profit-sharing program. Today, that plan still exists in a different form—an ESOP.
From Grain to Groceries, Employee Ownership Likely to Grow
Nowadays, most ESOPs belong to private companies with at least 100 employees, though many have as few as 20, according to NCEO. Some ESOPs belong to household names such as Bob’s Red Mill and Publix Super Markets, which has over 190,000 employees.
Still, these plans are not without risk. If a company tanks, so will the shares. But Rosen says that’s rare. According to his numbers, it happens with less than one percent of ESOP companies.
Currently, about 14 million people in the U.S. participate in an ESOP. That equals roughly 8 to 9 percent of the current U.S. workforce. But Rosen figures that number will grow over time as more Baby Boomer business owners think about retirement.
One day, Rosen said, “we think as much as 25 percent of the workforce could be in these plans.”