In addition, we estimate that roughly 9 million employees participate in plans that provide stock options or other individual equity to most or all employees. Up to 5 million participate in 401(k) plans that are primarily invested in employer stock. As many as 11 million employees buy shares in their employer through employee stock purchase plans. Eliminating overlap, we estimate that approximately 32 million employees participate in an employee ownership plan. These numbers are estimates, but are probably conservative. Overall, employees now control about 8% of corporate equity. Although other plans now have substantial assets, most of the estimated 4,000 majority employee-owned companies have ESOPs.
Major Uses of ESOPs
About two-thirds of ESOPs are used to provide a market for the shares of a departing owner of a profitable, closely held company. Most of the remainder are used either as a supplemental employee benefit plan or as a means to borrow money in a tax-favored manner. Less than 10% of plans are in public companies. In contrast, stock option or other equity compensation plans are used primarily in public firms as an employee benefit and in rapidly growing private companies.
ESOP Breakdown by Industry
ESOPs are used across a broad representation of industries, from architects to supermarkets to manufacturers. The most popular sector groups for private companies are professional, scientific, and technical services; manufacturing; and construction. For public companies, they are manufacturing, finance and insurance, and utilities. See our ESOP Breakdowns by Industry infographics.
Employee Ownership and Corporate Performance
A 2000 Rutgers study found that ESOP companies grow 2.3% to 2.4% faster after setting up their ESOP than would have been expected without it. Companies that combine employee ownership with employee workplace participation programs show even more substantial gains in performance. A 1986 NCEO study found that employee ownership firms that practice participative management grow 8% to 11% per year faster with their ownership plans than they would have without them. Note, however, that participation plans alone have little impact on company performance. These NCEO data have been confirmed by several subsequent academic studies that find both the same direction and magnitude of results.
How ESOPs Work
![What Is an ESOP and How Does It Work? (4) What Is an ESOP and How Does It Work? (4)](https://i0.wp.com/www.esop.org/images/ESOP-Nuts-and-Bolts-excerpt-160x149.webp)
Companies set up a trust fund for employees and contribute either cash to buy company stock, contribute shares directly to the plan, or have the plan borrow money to buy shares. If the plan borrows money, the company makes contributions to the plan to enable it to repay the loan. Contributions to the plan are tax-deductible. Employees pay no tax on the contributions until they receive the stock when they leave or retire. They then either sell it on the market or back to the company. Provided that an ESOP owns 30% or more of company stock and the company is a C corporation, owners of a private firm selling to an ESOP can defer taxation on their gains by reinvesting in securities of other companies. S corporations can have ESOPs as well. Earnings attributable to the ESOP's ownership share in S corporations are not taxable. See our FAQs on ESOPs and Employee Ownership and ESOP Pros and Cons.
In other plans, approximately 800 employers partially match employee 401(k) contributions with contributions of employer stock. Employees can also choose to invest in employer stock. In stock option and other individual equity plans, companies give employees the right to purchase shares at a fixed price for a set number of years into the future. (Do not confuse stock options with U.S. ESOPs; in India, for example, employee stock option plans are called "ESOPs," but the U.S. ESOP has nothing to do with stock options.)
How Employees Benefit
Participants in ESOPs do well. A 1997 Washington State study found that ESOP participants made 5% to 12% more in wages and had almost three times the retirement assets as did workers in comparable non-ESOP companies.
According to a 2010 NCEO analysis of ESOP company government filings in 2008, the average ESOP participant receives about $4,443 per year in company contributions to the ESOP and has an account balance of $55,836. People in the plan for many years would have much larger balances. In addition, 56% of the ESOP companies have at least one additional employee retirement plan. By contrast, only about 44% of all companies otherwise comparable to ESOPs have any retirement plan, and many of these are funded entirely by employees.
New Research on ESOP Company Executive and Board Director Compensation
ESOP companies often have questions about executive and board director compensation. The results of our recently concluded 2023 ESOP company executive and board director compensation survey are in, with 383 valid responses from participants, most (92%) of which were S corporations and 86% of which are 100% ESOP-owned. Most respondents include cash incentives as part of executive pay, whereas about 4 in 10 offer executives stock-based compensation outside of the ESOP. Nearly all have at least one inside director, and over three-quarters have at least one independent director. The full survey results are covered in a 57-page report.
Examples of Major ESOP Companies
ESOPs can be found in all kinds of sizes of companies. Some of the more notable majority employee-owned companies are Publix Super Markets (230,000 employees), Houchens Industries (18,000 employees), W.L. Gore and Associates (maker of Gore-Tex, 12,000 employees), and Davey Tree Expert (11,350 employees) (see our Employee Ownership 100 list). Companies with ESOPs and other broad-based employee ownership plans account for well over half of Fortune Magazine's "100 Best Companies to Work for in America" list year after year.
For Further Reading at NCEO.org
Below are a few good starting points at our main website; see our Find Your Resource page to explore further, especially the "Start Here" pages:
- How an Employee Stock Ownership Plan (ESOP) Works
- Using an ESOP for Business Continuity in a Closely Held Company
- Start Here: ESOP Participants (answers questions if you are an ESOP participant)
- ESOPs in S Corporations
- Limited Liability Companies (LLCs) and Employee Ownership
- Stock Options, Restricted Stock, Phantom Stock, Stock Appreciation Rights (SARs), and Employee Stock Purchase Plans (ESPPs) (a different way than ESOPs to provide equity)
An ESOP Map of the United States
Our interactive map of U.S. ESOPs color-coded by industry sector, updated for 2024, displays information about every U.S. ESOP on record.
Which States Have More ESOP Companies? See Our Heatmap
Our interactive heatmap of U.S. ESOPs in private companies shows how many plans are in your state and how many participants they have.
Featured NCEO Resources
Free Online Education
What Is an ESOP?
Our five-minute What Is an ESOP? video explains how ESOPs work, tax incentives, how employees benefit, where ESOPs are found, and more.
Free Online Education
An Interactive Introduction to ESOPs
Our Interactive Introduction to ESOPs is a mobile-friendly guide to what an ESOP is and how it would work at your company, including popup explanations and definitions, animated infographics, and quizzes.
Publication
Employee Ownership: Building a Better American Economy
An easy-to-read booklet, free in its PDF version.
Article
Employee Ownership by the Numbers
Learn about not only the number of ESOPs but also their representation by region, industry, and more, plus how the ESOP universe is changing over time and how other plan types fit in.
Publication
An Introduction to ESOPs
A concise explanation of what ESOPs are and their rules, uses, benefits, and implementation.
Article
The Employee Ownership 100: America's Largest Majority Employee-Owned Companies
This is our list of America's 100 largest companies (by employee count) that are majority employee-owned, updated for 2023.
Publication
Selling to an ESOP and Financing the Deal
A guide for business owners, managers, and advisors investigating ESOPs.
Article
Research on Employee Ownership and the Economy
Our research team has found that being in an ESOP is associated with higher household net wealth, higher net income from wages, higher retirement savings, and longer job tenure.
About the NCEO
The National Center for Employee Ownership (NCEO), founded in 1981, is a private, nonprofit membership and research organization that serves as the leading source of accurate, unbiased information on ESOPs, equity compensation plans such as stock options, and ownership culture. This domain (ESOP.org) was our Internet identity until we moved our main site to NCEO.org and kept this as an informational ESOP resource in association with the main site.
We are a membership organization and serve our members in a variety of ways. See our main website at NCEO.org for articles and other resources, live and replay webinars and in-person meetings, publications, ownership culture consulting and surveys, data and research, our Service Provider Directory, and much more.