Who says unions and ESOPs don’t mix?

Trade unions are on the rise. So is participation in employee stock option plans, or ESOPs. What gives? Isn’t unionization incompatible with employee ownership?

It is a myth. What is becoming increasingly clear as inflation outpaces wage gains is that unions and employee ownership offer paths to economic equality for employees—and they often go hand in hand. Unionized companies have established ESOPs for the benefit of their employees, just as they have often formed ESOPs for the benefit of non-union employees.

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

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

Regarding employee ownership and ESOPS, no firm 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 NCEO notes that ESOP plans have generally declined in number since 2000, the numbers are undoubtedly rising based on employee ownership activity—if the workload of our and other advisors is any indication.

Additionally, with vigorous ESOP-related activity in Congress and state legislatures, I stand by my prediction that this will be the decade of the ESOP. In 2022, three major bills provided 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% tax on corporate stock buybacks, 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 have also recently passed legislation in favor of ESOPS. California created a hub within the Office of Small Business Advocate tasked with reducing barriers to employee ownership. New York amended its business corporation law to allow expanded ESOP ownership to architectural and engineering firms.

Maine authorized its Public Utilities Commission to give employee-owned companies extra consideration when soliciting bids for renewable energy projects. NCEO notes that it is the first law to establish a specific preference for government contractors with ESOPs. In addition, several states are establishing employee ownership centers to stimulate ESOP growth.

Back to unions and ESOPs. There is no doubt that they mix. For example, many unionized construction and engineering companies have established ESOPs or other employee ownership-related initiatives, and not just for 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 sell 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 opportunities to embrace employee ownership—especially offering flexibility around benefits. For businesses, the thoughtful use of an ESOP can serve to navigate discussions with labor by showing employees that they are valued and respected when a union is not in place. This can change the dynamics of the relationship between management and the workforce. An ESOP, for example, can be tailored and administered alongside a company’s 401k retirement plan or separately from it.

In the case of unions, in the past they have used ESOPs and worker cooperatives to a greater extent to protect pension benefits and job security for their members. Among other things, points out Ms. Olson, unions have provided professional business consultants as well as lawyers and negotiators to represent the employees buying from a company seller.

Given the growing support for unions by Americans, it is likely that sufficient public support for employee ownership also exists. A 2019 University of Chicago survey found that nearly three-quarters of Americans surveyed — 72% of Republicans and 74% of Democrats — prefer to work at an employee-owned company.

Studies show that ESOPs generate greater engagement and satisfaction—and that improves employee well-being. This of course includes union workers. Unions and ESOPs, it seems, are alive and kicking.

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