Rapid Response - Solutions for Economic Transition
Jan 24

Tapping Into the Power of Employee Ownership

A Lay-Off Aversion Strategy

Throughout the economic turmoil of recent years, we’ve been inundated with news about companies laying-off employees in well-meaning attempts to quell red ink and save the company, or worse, closing. With the lingering specter of lost jobs and shuttered buildings, business/plant closings can have a profound negative impact on lives and communities. Whereas layoffs can be temporary, shutting down operations is very often final. However, there is an alternative to consider before the doors are locked, an alternative the takes advantage of the knowledge, experience and expertise of the employees: employee ownership or Employee Stock Ownership Plans (ESOP).

Employee ownership has an excellent track record of success. It can improve competitiveness and productivity, and over the years has played an integral role in the free enterprise system. Those who have experienced first-hand the power of employee ownership know the economic growth, employee well-being and dignity, and success it can infuse into a business enterprise. It is not magic – although you may question that at times -- and it does not guarantee success or prevent or cure business problems, but experience and research shows that employee owners have a more positive attitude about their company, their job, and their responsibilities.

Fundamentally, employee owners are more accountable for their job performance – as well as their fellow workers’ job performance – simply because they have a common stake in the success of their company. It’s a simple formula: if employees perform extraordinarily well, company performance is more likely to be extraordinary, and that translates into high stock value for the employees. It’s been said ownership is a powerful incentive for ordinary people to do extraordinary things. There is a lot of evidence to support that contention.

But not everyone is aware of this power. Even some employee-owned companies have not realized their full potential. This is not a matter of employees just owning stock but rather employee ownership at work. Stockholders alone do not build companies – employees build companies and employee-owners can build great companies.

The Role of Rapid Response in Facilitating the Establishment of an ESOP

Rapid Response practitioners can play a valuable role in the ESOP process by:

  • Acting as a catalyst to bring the necessary parties to the table
  • Providing early warning systems that detect pending or potential closings
    • Rapid Response teams are often the first public entity to recognize a pending or potential closing
    • Early intervention is absolutely vital to orchestrating a successful ESOP implementation.
  • Facilitating access to Workforce Investment Act (WIA) funding, which allows for prefeasibility studies
    • An important first step in establishing an ESOP is determining if the enterprise is a viable long-term business opportunity
  • Establishing labor management committees to conduct negotiations
  • Facilitating incumbent worker training programs to retool the business talent base if needed

While ESOPs are not an everyday occurrence they are a viable alternative to business/plant closings and something to keep in the Rapid Response toolkit.  

For Your Information:
According to the ESOP Association (esop@esopassociation.org), total assets owned by U.S. Employee Stock Ownership Plans (ESOPs) was estimated to be $800 billion at the end of 2006.

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