THE REAL STRENGTHS OF EMPLOYEE OWNERSHIP
Don't write an obituary for employee stock-ownership plans just yet. Although Congress last year did away with many of the tax incentives that originally sparked corporate interest in ESOPs, they are proving to be more popular than many people imagined (page 108). A new study indicates that the total worth of worker-owned stock in public corporations probably exceeds $150 billion, including an average of 12% of the shares of some 1,000 large, publicly held companies that employ 11 million workers.The appeal of ownership programs goes far beyond the tax breaks available to ESOPs. At a time when competitive pressures are forcing companies to keep a lid on labor costs, many are using stock plans as a substitute for cash compensation. Stock is being used to fund bonuses, pension and savings plans, and even retiree medical benefits.
Such programs are not without risk, particularly if corporate sponsors go belly-up in future years. But they can help make companies more competitive, enhance productivity, and bolster morale when wage hikes need to be deferred. Because workers are concerned with job security, they represent a source of patient capital that is likely to value long-term performance over short-term profits.
The most intriguing aspect of this trend is the possibility that workers who own a significant share of their companies will want a voice in corporate governance, as has already happened in the case of several companies contemplating mergers. Employers who prepare for this development by setting up mechanisms for dialogue can lay the groundwork for productive cooperation between labor and management in future decision-making. Those who don't may find worker ownership a mixed blessing.EDITED BY AMY DUNKIN