Who Says Unions And ESOPs Don’t Mingle?

Unionization is on the rise. So is participation in employee stock option plans, or ESOPs. What gives? Isn’t trade unionism incompatible with employee ownership?

That’s a myth. What’s increasingly clear as inflation outpaces wage gains is that unionism and employee ownership offer paths to economic equality for employees – and they often go together. Unionized companies have established ESOPs for their employees’ benefit just as they’ve often formed ESOPs that benefit their non-union employees.

2022 has proven to be the boom year for both unionization and ESOPs – and the trend should continue. Well-known companies where a union was considered impossible – Starbucks, Amazon, Trader Joe’s and Apple, among others – have lost organizing fights or face increased organizing activity. If this trend continues, forget the decades-long decline in private-sector union membership.

In the first half of 2022, reports Bloomberg Law data, unions won 641 elections, the most in nearly 20 years. Unions won over three-fourths of their elections, 80% above last year’s level, and represented more than twice as many workers, over 43,000. And Americans increasingly favor labor unions. Gallup’s 2022 annual survey finds that 71% approve of them, up from 68% last year and the highest since 1965.

As for employee ownership and ESOPS, no firm statistics are available, although the National Center for Employee Ownership estimates roughly 6,500 ESOPs in the U.S. cover 14 million participants. And while the NCEO notes that ESOP plans generally have declined in number since 2000, it’s unquestionable that the numbers are climbing based on employee ownership activity – if our and other advisors’ workloads are any indication.

Plus, with vigorous ESOP-related activity in Congress and state legislatures, I stand by my prediction that this will be the Decade of the ESOPs. In 2022, three major bills delivered significant incentives for existing and future ESOPs. They include the National Defense Appropriations Act, the Inflation Reduction Act that exempts ESOPS from a new 1% excise tax on corporate stock repurchases, and a measure signed in August strengthening the U.S. semiconductor industry that singles out employee-owned companies and associations for targeted support.

Many states also have adopted legislation recently benefitting ESOPS. California created a hub within its Office of Small Business Advocate tasked with reducing barriers to employee ownership. New York amended its business corporation law to permit expanded ESOP ownership of architecture and engineering firms.

Maine gave its Public Utilities Commission permission to give employee-owned companies added consideration when soliciting bids for renewable energy projects. The NCEO notes that’s the first law to establish a specific preference for state contractors with ESOPs. Plus, more states are establishing employee-ownership centers to prod ESOP growth.

Back to unions and ESOPs. There’s no question they mingle. Many unionized construction and engineering companies, for example, have established ESOPs or other employee ownership-related initiatives, and not just for their non-union employees.

Attorney Deborah Groban Olson cites eight such case studies of union-led employee-ownership initiatives. They include the UAW’s purchase of the Franklin Forge worker co-op when its parent company sought to divest it, and the United Food & Commercial Workers Union-led ESOP with family-owned Rosauers Supermarket in exchange for union concessions.

Today’s New Unionization offers avenues for embracing employee ownership – especially offering flexibility around benefits. For businesses, the thoughtful use of an ESOP can serve to help navigate discussions with labor by showing employees they are valued and respected when a union isn’t in place. This can change the dynamics of management-labor relations. An ESOP, for instance, can be tailored and managed alongside a company’s 401k retirement plan or separate from it.

As for labor unions, they have in the past made greater use of ESOPs and worker cooperatives to protect retirement benefits and job security of their members. Among other things, points out Ms. Olson, unions have provided professional business consultants as well as attorneys and negotiators to represent the employees buying from a corporate seller.

Given the growing support for unions by Americans, it is likely sufficient public support exists for employee ownership as well. A 2019 University of Chicago survey found that nearly three-fourths of Americans surveyed – 72% of Republicans and 74% of Democrats – would prefer to have a job at an employee-owned company.

Studies show ESOPs generate greater employee participation and satisfaction – and that enhances employees’ well-being. This, of course, includes union workers. Unionization and ESOPs, it appears, are alive and, well, mingling.