Give It to the Proles
Rosen, Corey
Give It to the Proles by Corey Rosen If you've traveled along the East Coast lately, you may have been a passenger on Peoples Express, one of the fastest growing—and most successful— young...
...his 1958 book extolling the idea was entitled The Capitalist Manifesto...
...The abolition of primogeniture laws, the Reclamation Act, and the Homestead Act—the latter gave land free to people willing to work it—all were motivated by this ideal...
...Far more important, however, is that most ESOPs violate one of the most basic tenets of capitalism: those who "own" the capital have little or no control over it...
...Airplanes, raincoats, bacon—diverse as these products are, they all have one thing in common: they're made by companies that are owned in part by their employees...
...magazine, "Having the ESOP eventually become majority shareholder doesn't bother me as long as voting rights aren't involved...
...What's different about companies like Peoples Express, Gore, and Rath—and the 5,000 other U.S...
...If you've simply stuck close to home, then perhaps you've been breakfasting on Rath bacon, brought to you by Rath Packing Company...
...Workers, and particularly the labor unions who represent them, have their own reservations about employee ownership...
...Why should workers worry about product quality when corporate executives can continue to make dumb decisions and award themselves bonuses even when the company is falling to pieces...
...The truth is, most jobs are rather routine if not boring, no matter how they're structured or how many "Work Smarter" signs dot the walls of the office cafeteria...
...For all the loose talk these days about the need for "economic democracy," ESOPs come closer than anything to realizing that ideal, which is in keeping with a long-forgotten tradition of American life...
...Of course, many employees own stock in their companies-5, 10, maybe 50 shares socked away in a safe deposit box somewhere...
...During the nation's first 100 years or so, economic policy was strongly motivated by a rather radical notion: wealth should be spread as evenly as possible, and everyone should have the opportunity to own a share...
...businesses that have Employee Stock Ownership Plans (ESOPs)—is that every full-time employee owns a piece of the company...
...Rath, number 499 on Fortune's famous 500, is 60 percent owned by its employees, who purchased it three years ago to keep it from going out of business...
...The company gets a hefty tax break for the contribution, and the employees can take out their stock—often at appreciated values—when they leave the company...
...What's more, the ratio was directly related to the amount of equity the employees owned—the more they owned, the more profitable the company...
...It doesn't take a behavioral psychologist to explain this...
...At W. L. Gore, the company's board is elected by the associates...
...A survey done at Harvard several years ago revealed that only one major union, the National Maritime Union, endorsed employee ownership...
...In about 500 of these companies employees own a majority of stock...
...This suits many managers just fine, such as Jack Lamp, the president of Arrow Metal Products Company...
...Too much of the time, not enough...
...today, perhaps 25 to 30 percent give employees full voting rights on stock, and the number is growing...
...But the next step, majority ownership and employee control, is quite another matter...
...Though many people have heard of ESOPs in connection with efforts to rescue failing companies, only a few fall into this category...
...After all, it's not only their jobs that are at stake but their companies as well...
...Let's seize them...
...The vast majority of corporate managers still believe they should make all the decisions while employees simply take orders and share the profits through wages and benefits...
...Unions fear that ESOPs will undermine their power, if not make them obsolete...
...President W. L. Gore boasts that his company has no employees—only 2,000 "associates," who own 95 percent of the company...
...Its greatest enthusiast in Congress is none other than Senator Russell Long, who is usually not renowned for his dedication to progressive taxation but nonetheless genuinely believes in the maxim "every man an owner," to paraphrase father Huey...
...Not only are most ESOPs found in thriving businesses, but those businesses are far more profitable than their competitors...
...Many ESOPs, particularly those set up in the early days, are little more than tax dodges for companies that want to give favored employees tax-free benefits...
...This development not only is good for the employees, it's good for the economy...
...Corey Rosen is executive director of the National Center for Employee Ownership, in Arlington, Virginia...
...Give It to the Proles by Corey Rosen If you've traveled along the East Coast lately, you may have been a passenger on Peoples Express, one of the fastest growing—and most successful— young airlines in America...
...After just two years, Peoples's people own 33 percent of its stock...
...He recently told Inc...
...Happily, this attitude seems to be changing...
...Railroad union leaders recently announced a plan to buy out the 50,000 employee Conrail Corporation, which the government will soon be putting up for sale, and the 8,000 employees of Weirton Steel in Weirton, West Virginia, are negotiating to buy the mill from National Steel in an effort to preserve their jobs...
...the average non-office-holding employee now has a $20,000 interest...
...Most business people intellectually agree that it makes sense for employees to have a financial stake in the company's success...
...At Peoples, employees make many of the decisions about how their jobs are organized, and non-flight jobs are rotated among self-managing crews...
...If you've been expecting some verification from a study, here it is: In 1978, researchers at the University of Michigan's Institute for Social Research found that companies with ESOPs were 1.5 times as profitable as conventional companies in comparable fields...
...But though the frontier may have vanished, opportunities remain for working men and women to feel they have a real stake in the nation's economic future...
...But it doesn't always have to be that way...
...If this idea seems like some strange ideological mutant—Marx's vision of worker ownership with a decidedly capitalist twist—it looks even stranger when you consider its progenitors...
...just think about how you'd feel about mowing your own lawn as opposed to mowing your neighbor's...
...This is a serious shortcoming...
...The plans usually work this way: A company contributes or purchases stock for employees and puts it in a special trust, crediting individual employees, on the basis of pay and length of service...
...in a few cases, they own the entire business...
...What comes with ownership...
...Chrysler workers will soon own at least 20percent of that company, thanks to a requirement in the Chrysler Loan Guarantee Act that the company establish an ESOP...
...Industrialization gradually destroyed this broad-based ownership policy that, not incidentally, had helped create the most successful agricultural system in the world...
...Lewis Kelso, a California investment banker, is generally credited with having cooked up the idea...
...And at Rath, the company is 100 percent controlled by its employees, who decide pay levels, where to invest their money, and how much to pay in dividends...
...If you went camping, chances are good you were using something made of "Gore-Tex," a breathable yet waterresistant fabric coating made by W. L. Gore and Associates...
...Five years ago most ESOP plans involved little more than giving employees stock...
...But not surprisingly, employees in self-held companies are more motivated, they work harder, they innovate more, and when times get tough, employeeowners are more amenable to making sacrifices...
Vol. 14 • December 1982 • No. 10
