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  • Writer's pictureKatie & Brian Boland

Investing in Employee Ownership: A Pathway to Reducing Inequality and Building Wealth

In today's economic landscape, rising wealth inequality is a significant issue. The gap between the rich and the poor has reached staggering heights, leaving many Americans behind. However, there is a growing solution that can address this problem and transform the economic future for millions of workers: employee ownership. By investing in employee ownership, we can create a more equitable economy, preserve the legacy of small businesses, and provide workers with a stake in the businesses they help build.

The Problem of Wealth Inequality

According to data from the Federal Reserve, wealth inequality in the United States has been increasing at an alarming rate. The top 10% of households own more wealth than the bottom 90% combined. This disparity leaves many families without the financial security needed to weather economic downturns, invest in their futures, or pass on wealth to the next generation. This growing gap is a fundamental challenge that we must address to create a fairer and more inclusive economy.

The Silver Tsunami and Generational Opportunity

One of the most pressing issues we face is the impending wave of retirements among Baby Boomer business owners, often referred to as the "Silver Tsunami." Project Equity's research highlights that 70% of small businesses fail to sell when their owners retire, often leading to closures. This situation presents a generational opportunity to transfer ownership to employees, ensuring these businesses continue to thrive while addressing wealth inequality. By transitioning ownership to employees, we preserve the legacy of these businesses and provide workers with a tangible stake in their success.

What is Employee Ownership?

Employee ownership involves giving workers a share in the ownership of the company they work for. There are several models of employee ownership, including:

  • Employee Stock Ownership Plans (ESOPs): A retirement plan that invests in the stock of the employer company. Employees gain ownership through company-funded contributions without using their wages or savings.

  • Worker Cooperatives: Businesses owned and democratically controlled by their employees. Profits are distributed among worker-owners based on their labor contributions.

  • Employee Ownership Trusts (EOTs): Trusts that hold the business in perpetuity for the benefit of employees, ensuring long-term employee ownership.

These models provide different pathways for businesses to share ownership with their employees, each with unique benefits and structures.

Benefits of Employee Ownership

The Rutgers study and data from the Institute for the Study of Employee Ownership and Profit Sharing underscore the significant benefits of employee ownership:

  • Building Financial Knowledge and Assets: ESOPs and other employee ownership models help workers build substantial retirement savings without reducing their current incomes. For example, employees in ESOPs often have higher retirement savings than their peers without employee ownership.

  • Expanding Workforce Capabilities: Employee ownership fosters a culture of continuous learning and development. Workers gain leadership, financial literacy, and technical skills, enhancing their overall capabilities.

  • Improving Health and Well-being: Employee ownership has been linked to improved job satisfaction, lower turnover, and better overall health and well-being for workers.

  • Increasing Access and Inclusion: Employee ownership benefits workers across race, ethnicity, and gender, helping to reduce wealth disparities and promote inclusivity.

Success Stories: Real Impacts of Employee Ownership

Consider the story of Clegg Auto, a small auto repair and body shop business in Utah that transitioned to an Employee Ownership Trust (EOT) in August 2022. This move marked a significant shift for the company, which has long been known for its high-quality customer service. The decision to embrace the EOT model allowed Clegg Auto to double its profits within a year, demonstrating the power of employee ownership to drive business performance. With all 55 employees participating in profit sharing and governance, Clegg Auto has set a new standard for inclusivity and shared success in the industry.

Kevin Clegg, CEO of Clegg Auto, highlights the benefits: "We had our best quarter in company history after becoming employee-owned, and this last quarter we nearly doubled those results again, as well as hit our highest customer satisfaction metrics since the company was founded."

Clegg Auto's transformation also stands as a testament to the "ownership flywheel" effect, where employee empowerment fuels motivation and drives performance. By choosing the EOT model, Clegg Auto could allocate resources toward growth and innovation rather than administrative overhead, ensuring a streamlined and cost-effective approach to employee ownership.

Another inspiring example is Delta Pipeline, Inc., a Long Beach, California-based utility business that became 100% employee-owned through an ESOP in 2017. Craig Danley, President and CEO of Delta Pipeline, emphasizes the company's commitment to an employee-first attitude. "Our culture really is about how to create ownership, how to create a culture of organization and community that revolves around relationships and people, and how to inspire people to perform not for themselves but to perform for the organization as a whole," says Danley.

Delta Pipeline's success stories include entry-level workers advancing to positions such as Foremen, Superintendents, and Project Engineers. The company also offers profit sharing, leadership opportunities, and a comprehensive training program called Delta Pipeline University. Despite challenges posed by the COVID-19 pandemic, Delta Pipeline has maintained steady employment and continued to thrive, showcasing the resilience and adaptability of employee-owned businesses.

Opportunities for Engagement

There are several ways to engage more deeply in promoting and investing in employee ownership:

Call to Action

Now is the time to invest in employee ownership. With inequality at unprecedented levels and the Silver Tsunami upon us, we have a unique opportunity to reshape the ownership landscape in the U.S. Investing in employee ownership aligns with the values of community, fairness, and economic justice that are essential to revitalizing Main Street businesses across America. By engaging in the opportunities outlined above, we can create a more equitable and inclusive economy for all.

Employee ownership is not just a financial strategy; it is a powerful tool for social change. By investing in employee ownership, we can build a more inclusive economy, preserve the legacy of small businesses, and provide workers with a meaningful stake in the businesses they help build. Let's seize this moment to make a lasting impact and create a fairer future for everyone.

For more information and to get involved, visit the links to Project Equity, the Rutgers Institute for the Study of Employee Ownership and Profit Sharing, and other organizations mentioned in this post. Together, we can make a difference.

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