Sharing Is The New Economy
Joseph R. Blasi
J. Robert Beyster Professor
Based on The Citizen’s Share, by J. Blasi, R. Freeman and D. Kruse, Yale University Press, 2013
SNPI Conference
Erasmus University – Rotterdam
March 13, 2014
The Dutch Connection
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Colonel Henry Rutgers
• Son of Dutch immigrants Hendrick Rutgers and
Catherine DePeyster
• Settled the Dutch colony of New Netherland
• Prominent layman in the Dutch Church and early
advocate of American Independence
• Donated land/funds for Queens College (Rutgers
University), seminary for Dutch Reformed Church
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J. Robert Beyster
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Prominent California high tech entrepreneur
Nuclear scientist
Dutch Catholic with strong social ideals
Founder of Science Application International
Corporation, once the largest employee-owned
engineering consulting firm of 40,000 employees
and $ 8 billion in sales
• Endowed the J. Robert Beyster Professorship,
founded the Rutgers Beyster Fellowship Program,
founded the UCSD Beyster Institute and the
Foundation for Enterprise Development
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The First Research on Shares
“The Captain and the Crew drew one half, and
agreed
Among themselves in what Proportion to divide the
Fare. Sometimes the Owners hire the men by the
month and give them Common Seaman’s wages
…they were generally found the most attentive when
their Dependence was on a Share of what they
Caught.”
-Joseph Anthony, leading shipper in Philadelphia,
letter to Assistant Secretary of the Treasury
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What I Will Talk About?
• A Short History?
• How Much and Where?
• What Are The Results?
• What Is The Government Policy?
• What Are the Lessons Learned?
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A Short History: The Founders
• Washington signs the shares law on the cod fishery on
February 16, 1792
• “It (America) will not be less advantageous to the lowest
class of people because of the equal distribution of property.”
George Washington, 1789
• “The only possible way of preserving equal liberty…is to
make the acquisition of land easy to every member of
society.” John Adams
• Broad property promotes growth. Alexander Hamilton
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A Short History: Land to Businesses
• A republic was impossible without broad property
and each citizen needs enough capital to be
independent in contrast to history of VOC
• Louisiana Purchase (1803) Homestead Act (1862)
• The future of shares was in corporations
• Pillsbury, Procter, Eastman, Carnegie, Rockefeller,
and, most recently, Louis O. Kelso
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How Much and Where: Who?
• Employee stock ownership: 17.4% - 19 million
• Employee stock options: 8.7% - 9 million
• Profit sharing last year: 30.2% - 26 million
• Gain sharing last year: 21.3% - 24.4 million
• Some shares: 47% of all/63% in corps – 47 million
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How Much and Where: What Groups?
STOCK
OPTIONS
• Management: 22% / 11%
• Mgt Related
29% / 17%
• Professional 18% /
9%
• White Collar 23% /
14%
• Blue Collar
15% /
5%
• Service
5%
/
1%
• Union
• Non-Union
15%
17%
/
/
10%
9%
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How Much and Where: $$$$$$$
• Company Stock
-$47,000 or 81% of annual fixed pay is the average
-$10,000 or 21% of annual fixed pay is the median
• Profit Sharing and Gain Sharing
-$7,000 or 9% of annual fixed pay is the average
-$1500 or 4% of annual fixed pay is the median
• Potential Stock Option Profits
-$250,000 or 184% of annual pay is the average
-$75,000 or 100% of annual pay is the median
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How Much and Where: Trends
Layoffs and Employee Ownership
14.0%
12.1%
Laid off in prior year
12.0%
10.0%
9.3%
8.6%
Employee
owner
8.0%
6.0%
4.0%
3.0%
Not
employee
owner
2.3%
2.6%
2.0%
0.0%
2002
2006
2010
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How Much and Where: Trends
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How Much and Where: Sectors
• About 20% of the Fortune 100: Exxon/Mobil (2), GM (7),
Ford (10), P & G (28), UPS (53),Morgan Stanley (96)
• About 10% of the Fortune 500: Publix (108), Nucor
(146), Southwest (208), ParkerHannifin(211)
• Common in high tech: Apple (6), Microsoft (35), Amazon
(49),Google(55), Cisco (60), Qualcomm(149)
• Common among large private companies: Cargill/1,
Mars/3, Fidelity/20, Bloomberg/44, Wawa/47, Hallmark/95
• Meaningful among top 200,000 small businesses 100 to
1000 with about 2-3,000 ESOPs with 2 million employees
• Large in tech start-ups and small among worker coops
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The Results? The NBER Study
• Kruse, Freeman, and Blasi, 2010, NBER and University of Chicago
Press. Fixed-effect cross-sectional study of 41,000 workers in 14 firms
with the 2002 and 2006 General Social Surveys as the national control
Group compares workers with and without shares and policies
addresses firm policies and examines all forms of shares accounting for
All worker compensation. Workers with more share plans and the above
median % of pay in shares exhibited: lowered turnover, greater loyalty,
more suggestions, more willingness to work hard and innovate, more
willingness and actual behavior of worker co-monitoring to counteract
free riding, especially with high performance work practices (ei/teams,
training, job security) when absenteeism also went down. Confirmed by a
natural experiment. Below market wages, risk, and high supervision
erased the effects. Funded by Russell Sage and Rockefeller Foundations.
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The Results? The Hundred Best Study
• Kruse, Blasi, and Freeman, 2012, NBER Working Paper. Study of
1300 corporations who applied for Fortune’s Hundred Best Company to
Work For competition form 2005-2007 using 305,339 random worker
surveys from the Great Place to Work Institute as well as management
Culture Audit Surveys Captures 10% of total sales, 10% of total
employment, and 20% of the market value of all publicly traded
corporations in 2007. Firms with more broad-based employee
ownership, profit shares as a % of pay, and stock option coverage have
more high performance work practices, higher Trust Index Scores,
more high trust supervision, with ESOPs in the lead. Shares plus
employee empowerment had the lowest turnover and highest Return on
Equity. Funded by the Alfred. E. Sloan Foundation.
• Questions Raised: Why are there not more and larger shares?
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The Results? Focus on ESOP Sector
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From Louis Kelso’s creation to Long’s ERISA 1974 to present, 10,300 companies, 10 million workers, about a trillion
in market value, 1/3rd majority to 100% and 1/3 10-49% worker-owned, with 90% in closely-held firms, 60% in firms with
40-1000 workers
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The distinguishing feature is that workers do not purchase the shares, rather employee trusts take out loans to buy
shares with tax incentives that companies pay back out of earnings.
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1987 GAO study found productivity improvement with participation
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Kruse and Blasi 1997 review found 4-5% productivity improvement upon adoption with maintenance of higher
productivity
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GSS 2006 finds 80% of worker owners report paid at or above market
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Kim/Ouimet 2013 Journal of Finance study finds higher fixed wages in public ESOPs using Census data supported by
comparisons of ESOP and non-ESOP firms in Massachusetts & Washington
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Blasi, Kruse, Weltmann 2014 population study of all ESOPs founded in 1988 ten years later found half as much
bankruptcy and four times more likely to have a pension plan
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The National Center for Employee Ownership 2010 study of 3,976 closely-held ESOPs found half had a diversified
pension plan, average worker contributions to ESOP were close to nil, average company contribution was $4433 versus
$2,533 for non-ESOP plans defined contribution plans, & ESOP workers had retirement assets over twice of non-ESOP
Workers who make employees pay for a large proportion of their own retirement savings.
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U.S. Bureau of Labor Statistics 2013 study of rates of return earned in ALL retirement plans shows ESOPs did better
than all retirement plans in every period from 1992-2011.
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Study of 27 ESOP administrators finds 2009-2010 default rates of 0.3% vs 3% for PE and 6% for LBO
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The Results? The Business Model
• Evidence is that managers are getting culture right
partly as a result of a changed view of hierarchy.
See both General Social Survey & 100 Best study.
• The evidence shows shares + culture = results
• Most US shares do not involve wage substitution
• Important to combine cash and equity shares.
• The popularity of shares in more team-oriented
high technology companies has helped.
• Wages and retirement savings are higher because
the pie is getting bigger on average.
• Finally, lower supervision & working smarter.
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Government Policy: Why Success?
• Businesspeople pushed leaders.
• Just a few champions with strong advisory teams.
• Always been non-partisan, all political parties.
• Industry associations in the capital city.
• Firms & their employees & leaders exchange visits.
• Tax policies exist for every size and sector with
incentives for firms to do it and workers to make $.
• The special taxes creating ESOPs helped a lot.
• Special tax incentives got Wall Street involved.
• BUT poor White House coordination & mistakes
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Government Policy: A Reason to Care
• Economic inequality advancing to feudalism
• Concentration of capital ownership, income, gains
• Fixed wage growth is flat adjusted for inflation
• Returns to education are flattening out
• Those with increasing wealth get it by shares.
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Government Policy: U.S. Errors
• The Enron Mistake: pushing workers to buy
company stock in 401k plans was an error.
• Share policies need to be based on grants of ESOP
stock, restricted stock, performance shares, and
stock options NOT ON WORKER PURCHASES.
• Two very important tax incentives for shares, one
for Wall Street and one for high tech for reversed
because the industry was not well organized.
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The Share Economy
• Shares improve firm performance with a
supportive corporate culture.
• Shares address economic inequality because they
expand the middle class’s access to capital
ownership, capital income, and capital gains.
• Meaningful national shares can expand economic
growth by giving the middle class more to spend.
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The Lessons Learned? Employers.
• Measure your plans.
• Be active in associations. Take nothing granted.
• Visit government officials along with the workers.
• Invite in researchers.
• Support university programs
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The Lessons Learned? Unions
• Unions worked with the concept at extremes:
either founding firms without good management or
using the concept to rescue failing firms
• A word on United Airlines – NOT AN ESOP
• Unions have a strong reason to push share policy
• Unions should bargain for share plans and options,
especially the establishment of the Leveraged ESOP
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The Lessons Learned? Universities
• With all these shares, University study was low.
• Presidents, Deans, Chairs, and Professors played
to the egos of the hierarchy of the firms not the
models
• Key is to persuade the share firms and CEOs to act
• Then, one needs to develop data and fellowships.
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A New Film by Mary Ann Beyster
• WE THE OWNERS is an examination of the
dynamics of operating an employee-owned
business in a brewery, a construction company,
and a solar installation cooperative
• www.wetheowners.com for the trailer
• Available in DVD and 3 year streaming from the
Film Media Group at:
http://films.com/ItemDetails.aspx?TitleId=27331
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THE END
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