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From Silicon Valley startups to legacy manufacturers, business leaders are asking a fundamental question: Should employees have ownership in the companies they help build?
Employee ownership has long been associated with stronger cultures, better financial performance, and more secure retirements for workers. Yet despite these advantages, new ESOP creation has remained steady at roughly 250 plans per year—suggesting that many leaders are still uncertain about how employee ownership works or whether it’s right for their organization.
According to Mary Josephs, founder and CEO of Verit Advisors and a nationally recognized expert in ESOPs, the opportunity is far larger than many realize. Having advised on more than 300 middle-market ownership transitions, Josephs believes employee ownership represents one of the most underutilized tools in American business today.
“The broad range of employee ownership opportunities has the power to transform our economy as they continue to become more widely adopted,” says Josephs.
Why Employee Ownership Matters—to Businesses and to the Economy
Employee ownership aligns employees and employers around a shared outcome: long-term success. Companies can benefit from higher engagement, lower turnover, and stronger operating performance. Employees, meanwhile, gain access to wealth-building opportunities that go beyond wages and bonuses.
Josephs notes that employee ownership also plays a meaningful role at the national level.
“When more Americans participate in ownership, we’re not just strengthening individual companies, we’re improving retirement security and expanding access to wealth creation,” she says.
For leaders thinking about succession, culture, or long-term value creation, employee ownership can address multiple objectives at once.
The ESOP: A Proven, Flexible Ownership Model
The most established form of employee ownership in the U.S. is the Employee Stock Ownership Plan (ESOP). An ESOP is a tax-qualified retirement plan that owns company stock on behalf of employees. It is also the only retirement plan allowed to borrow money, making it a uniquely flexible tool for ownership transitions.
According to Josephs, flexibility is the defining advantage of ESOPs.
“A well-designed plan can support tax efficiency, succession planning, culture building, or all three,” she says.
Potential Risks and Downsides of ESOPs
While ESOPs offer significant benefits, they are not without complexity or risk. Josephs emphasizes that understanding the tradeoffs upfront is critical to long-term success.
“An ESOP is not a plug-and-play solution,” she says. “It’s a powerful tool, but it requires thoughtful design, strong governance, and long-term commitment.”
Key considerations include:
- Complexity and Cost: ESOPs involve legal, financial, and regulatory complexity. The ongoing valuation, compliance, and fiduciary oversight add administrative costs.
- Cash Flow Demands: Companies must have sufficient cash flow to service ESOP debt and fund future share repurchases.
- Repurchase Obligation: As employees retire or leave, the company must buy back their shares. This obligation grows over time and must be actively managed.
- Cultural Misalignment: Ownership alone does not create engagement; without education and transparency, employees may not fully understand or value their ownership stake
- Not Right for Every Business: ESOPs are generally better suited for profitable, stable companies with strong management teams.
“Most ESOP challenges are solvable,” Josephs notes. “But they need to be addressed before — not after — the transaction.”
Common ESOP Structures
100% ESOP
- Company becomes fully employee-owned
- Offers maximum tax advantages
- Can create a strong, ownership-driven culture
Partial ESOP
- Owners sell less than 100% of shares
- Allows diversification or a phased transition
- Preserves leadership continuity
Contributory ESOP
- Company contributes stock or cash annually
- Rewards employees directly through ownership
- Contributions are often tax-deductible
C Corporation vs. S Corporation ESOPs
- C Corporations: Sellers may permanently defer capital gains taxes under Section 1042
- S Corporations: The ESOP’s share of income is exempt from federal income tax, allowing more reinvestment in growth
Beyond ESOPs: Other Employee Ownership Options
While ESOPs are the most widely used model, they are not the only way to share ownership.
Employee Ownership Trusts (EOTs)
EOTs have existed internationally for decades and are gaining interest in the U.S.
- Generally simpler and less expensive than ESOPs
- Offer fewer tax advantages
- Employees benefit through profit-sharing rather than retirement plan ownership
EOTs can be an attractive option for owners seeking simplicity and long-term stewardship.
Private Equity with Broad-Based Ownership
Some private equity firms are now integrating employee ownership into acquisitions, often in partnership with organizations like Ownership Works.
“Ownership Works bridges the opportunity gap by bringing broad-based ownership into private equity deals,” says Josephs. “It creates wealth for employees who might otherwise never have access to ownership.”
Stock-Based Profit Sharing and Bonus Programs
- Easier to implement than ESOPs or EOTs
- Highly flexible
- Can reward short- or long-term performance
These programs can complement ownership plans or serve as an entry point.
Is Employee Ownership Right for Your Company?
Before choosing a structure, leaders should ask themselves:
- What is my primary goal — succession, retention, culture, or tax optimization?
- Do I want full or partial employee ownership?
- Is my organization ready for the cultural shift ownership brings?
- Does my company’s cash flow and valuation support an ESOP or EOT?
“Patience and understanding cut through the confusion,” Josephs says. “The right strategy exists—the challenge is matching it to your goals.”
The Human Impact of Ownership
Beyond financial metrics, Josephs says she is most inspired by the personal stories of employees whose lives have changed through ownership.
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Karen Jones, Sentry Equipment: From purchasing clerk to director, Karen saw her ownership value grow 12-fold over 19 years.
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Archie Reed, Web Industries: “I could tell right away this place was different,” Archie says. “Knowing my ESOP is there makes retirement feel secure.”
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Mike Kromminga, ITA Group: “I went from unemployed to owner,” Mike says. “My voice is respected. It’s life-changing.”
These stories illustrate why employee ownership continues to gain momentum—it creates security, dignity, and shared purpose.
The Payoff
Based on decades of experience and proprietary research involving hundreds of founders and executives, Josephs is clear about the results: “Employee ownership works. It preserves legacy, improves performance, and creates real wealth for employees. The benefits extend far beyond any single company.”
Key Takeaways for Leaders
- Employee ownership is not one-size-fits-all
- ESOPs, EOTs, and profit-sharing models each offer distinct advantages
- The right model aligns with your goals for succession, culture, and growth
- When done well, employee ownership benefits businesses, employees, and the broader economy
Considering Employee Ownership?
Our RED Team interim executives have decades of experience leading companies through ownership transitions, from selecting the right structure to leading the cultural change that follows.
Call 847.849.2800Â or Contact Us to start the conversation.
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