Who says unions and ESOPs don’t mix?

Unionization is on the rise. The same goes for participation in employee stock option plans, or ESOPs. Which give? Isn’t trade unionism incompatible with employee share ownership?

It’s a myth. What’s increasingly clear as inflation outpaces wage gains is that unionism and employee ownership provide pathways to economic equality for employees — and they often go hand in hand. Unionized companies have established ESOPs to benefit their employees, just as they often have formed ESOPs that benefit their nonunion employees.

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

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

With respect to employee ownership and ESOPS, no company statistics are available, although the National Center for Employee Ownership estimates that approximately 6,500 ESOPs in the United States cover 14 million participants. And while the NCEO notes that ESOP plans have generally declined in number since 2000, there’s no denying that the numbers are increasing based on employee stock ownership activity – if our caseloads and those of other advisors are any indication. .

Moreover, with vigorous ESOP-related activity in Congress and state legislatures, I stand by my prediction that this will be the decade of ESOPs. In 2022, three major bills offered significant incentives for existing and future ESOPs. These include the National Defense Appropriations Act, the Inflation Reduction Act which exempts ESOPS from a new 1% excise tax on corporate stock buybacks, and a measure signed in August strengthening the US semiconductor industry that targets employee-owned companies and associations. .

Many states have also recently passed legislation to benefit ESOPS. California has created a center within its Office of Small Business Advocate to reduce barriers to employee ownership. New York amended its business corporations law to allow for expanded ESOP ownership of architectural and engineering firms.

Maine has given its Public Utilities Commission permission to give employee-owned businesses additional consideration when soliciting bids for renewable energy projects. The NCEO notes that this is the first law to establish a specific preference for state contractors with ESOPs. Additionally, more and more states are establishing Employee Stock Ownership Centers to drive ESOP growth.

Back to unions and ESOPs. There is no doubt that they mix. Many unionized construction and engineering companies, for example, have implemented ESOPs or other employee share ownership initiatives, and not just for their nonunion employees.

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

Today’s new unionization provides opportunities for the adoption of employee ownership, particularly by providing flexibility in employee benefits. For businesses, the thoughtful use of an ESOP can help navigate discussions with workers by showing employees that they are valued and respected when a union is not in place. This can change the dynamics of labour-management relations. An ESOP, for example, can be tailored and managed alongside a company’s 401k retirement plan or separately from it.

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

Given the growing support for unions by Americans, it is likely that there is also ample public support for employee ownership. A 2019 University of Chicago survey found nearly three-quarters of Americans polled — 72% of Republicans and 74% of Democrats — would rather have a job at an employee-owned company.

Studies show that ESOPs generate greater employee engagement and satisfaction, which improves employee well-being. This, of course, includes unionized workers. Unionization and ESOPs, it seems, are alive and, well, intermingling.

Leave a Comment