Employee Ownership Foundation releases survey data comparing pandemic response among ESOP and non-ESOP firms
By Karen Kahn
Majority ESOP firms are three to four times more likely than other firms to have retained their employees during the COVID-19 pandemic, reports the Employee Ownership Foundation (EOF). The data comes from a survey conducted by the Rutgers University Institute for the Study of Employee Ownership and Profit Sharing and the national survey firm SSRS.
As in the 2008 recession, the survey found that majority employee-owned firms are far less likely to resort to layoffs during a downturn. In addition to retaining staff at nearly a four-to-one ratio, the employee-owned firms were:
- Significantly less likely to reduce employees’ hours or pay;
- More likely to have employees work from home—and made that decision earlier during the pandemic; and
- More likely to provide personal protective equipment (PPE), including gloves and masks, to their employees.
For every person who lost a job at a majority ESOP firm, four people lost jobs at other firms. In addition, while about one-third (35 percent) of employee-owned firms cut hours of one or more staff, two thirds (63 percent) of non-ESOP firms cut hours.
The survey also found that ESOP firms that did not access government assistance were better at retaining employees than non-ESOP firms that received government assistance.
By maintaining high levels of employment, ESOPs kept more money in the hands of employees, helping to keep the economy afloat. Moreover, maintaining employment ensured that more families had access to critical health benefits during the pandemic.
ESOPs also moved more quickly to protect their employees during the pandemic. By March, over half (53 percent) of employee-owned firms had either sent employees home to work or provided PPE and sanitizing equipment as compared to 41 percent of non-ESOP firms.
Having taken action early, ESOPs continue to be more optimistic than other employers about the resilience of their businesses. Only 1 percent of ESOPs as compared to nearly 6 percent of conventional businesses feel that their businesses are unlikely to return to their pre-pandemic level of operations.
The survey also looked at the Paycheck Protection Program (PPP) and concluded that the $349 billion PPP program promoted retention at both ESOP and non-ESOP companies. But the survey also found that ESOP firms that did not access government assistance were better at retaining employees than non-ESOP firms that received government assistance.
“ESOP companies that received no PPP funding laid off employees at a rate 3.2 times lower than companies without majority ESOPs that received PPP funding,” says the report detailing the survey findings.
This finding has significant implications for public policy, note the report authors. Proposed tax incentives to grow the number of ESOPs (S. 177 and H.R. 2258) would reduce income to the U.S. Treasury by about $10 billion over ten years. In comparison, the U.S. government spent $349 billion on the PPP program to promote job retention.
“From a policy perspective, this study shows that the employee ownership model far surpasses emergency measures like the Paycheck Protection Program as a means of ensuring job stability and retention during crises as well as normal times,” said Jim Bonham, president and CEO of The ESOP Association in a press release. He went on to say, “As we recover from COVID and this economic crisis and examine what policies to adopt to make future episodes less painful for our nation, the role of broad-based employee ownership clearly must be part of that equation.”
The survey, funded by the Employee Ownership Foundation and conducted by the Rutgers Institute for the Study of Employee Ownership and Profit Sharing and SSRS, included 247 executives from the ESOP Association member companies and 500 executives from an SSRS business panel constructed to be representative of U.S. businesses with 50 or more employees. It was conducted between August 5 and September 23, 2020.
Karen Kahn is a communications consultant and the editor of Employee Ownership News.