Mar 20, 2024 - Business

The surging wealth of employee-owners

Data: Department of Labor via CSG Partners; Chart: Axios Visuals
Data: Department of Labor via CSG Partners; Chart: Axios Visuals

Total assets in employee share ownership plans exceeded $2 trillion in 2021, and have almost certainly risen since then.

Why it matters: Unions exist to ensure that owners share corporate wealth with their workers. Under an ESOP, where companies are owned and controlled by their employees, that happens automatically.

State of play: There are roughly 15 million participants in such plans in the U.S., including more than 10 million active participants. Many of them, including longtime employees at companies like Publix, are millionaires.

How it works: When it's time for founders to sell their company, they often choose to do so via ESOP, effectively handing it over to their employees while deferring or avoiding capital gains taxes on the sale.

  • Such deals, known as leveraged ESOPs, are more popular than ever, says Andrew Nikolai of CSG Partners, an ESOP advisory firm.
  • The buyers — the employees — don't have to put up the cash for the deal; instead, the purchase is financed and they build up their equity over, typically, 20 years.

By the numbers: As of end-2021, the most recent year for which we have data, there were 3,445 leveraged ESOPs, with an average of $166,000 in assets per participant. That number — a large part of the wealth of ESOP employees — rose 44% just between 2018 and 2021.

  • While leveraged ESOPs account for most new ESOPs, it's the more established unleveraged ESOPs that account for the lion's share of total assets. Their $1.8 trillion in assets works out to $139,000 per participant.

The bottom line: ESOPs, like unions, have proven to be a very effective wealth-creation mechanism for Americans without college degrees.

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