NCEO publishes ESOP data for 2019
by Karen Kahn
Over the last five years, Employee Stock Ownership Plans (ESOP) have continued to decline in total number, though the number of plan participants has increased modestly, according to new data released from the National Center for Employee Ownership (NCEO). ESOP formation remains steady — 239 in 2019 — but miniscule compared to the roughly 13,000 M&A transactions in the same time period.
ESOP formation among privately held firms remains steady—239 in 2019—but miniscule compared to the roughly 13,000 M&A transactions in the same time period.
Analyzing data from 2019, NCEO identified 6,482 ESOPs at 6,257 companies, down from 6,717 ESOPs in 2014. The vast majority of ESOPs—5,880—are at private firms. However, the majority of participants are employees of public firms. Of the 13.9 million total ESOP participants, NCEO reports a little under 12 million were employed by publicly held firms and 2.04 million by privately held businesses.
Among the most striking trends has been the decline in ESOPs in publicly traded firms. Among publicly held firms, NCEO found 22 percent fewer ESOPs in 2019 than in 2014, with 2 percent fewer participants. In 2014, of all ESOPs, 11.4 percent were in publicly traded firms; in 2019, ESOPS in public companies represented just 9.3 percent of the total. At the same time that ESOPs have declined, however, alternative forms of profit-sharing and bonus plans have expanded. In 2014, NCEO found 2,898 such alternative plans for sharing equity; that number had grown to 4,680 in 2019.
Among the most striking trends has been the decline in ESOPs in publicly traded firms.
Over the last five years, the formation of new ESOPs has remained steady. In 2019, publicly traded firms formed 10 new ESOPs, while privately held firms formed 229 ESOPs. During the same period, the U.S. saw about 13,000 corporate acquisitions plus another 1200 acquisitions by private equity. In other words, corporate and private equity buyers acquired 73 times the number of businesses sold to ESOP trusts.
The good news is that the number of participants in ESOPs at privately held firms is growing. In 2019, 2.04 million workers in private firms owned shares in an ESOP, as compared to 1.92 million in 2014, an increase of 5.7 percent. This growth is reflected in the median size of ESOPs at these firms, which has increased from 50 participants in 2014 to 57 in 2019. About a third of ESOPs have over 100 members. These changes may reflect greater consolidation of firms, and a growing number of ESOP holding companies, where employees at subsidiaries all participate in a single ESOP (for example, Empowered Ventures).
The value of participating in an ESOP is significant. These plans paid out $137 billion to employee-owners in 2019; of that total, private firms paid out $16 billion to their 2 million participants. In a recent report from the NCEO and Employee-Owned S Corporations of America (ESCA), researchers found that S ESOP participants have greater financial security at retirement than their counterparts in non-ESOP firms. Retirement age (65 and older) S ESOP participants averaged over $325,000 in savings, with about two-thirds from their ESOP account. The average savings of U.S. workers at retirement is just over $100,000.
Karen Kahn is a communications consultant and the editor of Employee Ownership News.