Imagine working for a company where you’re not just another employee but also an owner, sharing in its successes and playing a key role in its direction. That’s the essence of an employee-owned company. These businesses are gaining popularity as they promise a more inclusive and empowering way to operate, benefiting both the employees and the organization.
Employee ownership is becoming more relevant as people look for workplaces that value fairness, collaboration, and shared success. For employees, it often means more financial benefits, a stronger voice in decision-making, and a deeper connection to their work. For businesses, the model can improve productivity, foster loyalty, and even make companies more resilient during tough economic times.
Some of the biggest employee-owned companies are thriving in diverse industries, proving that this business model isn’t just about creating a positive workplace—it’s also a strategic way to run a business. For example, Publix Super Markets, the largest employee-owned company in the U.S., employs over 255,000 people.
What is an employee-owned company?
An employee-owned business is a company where all or a significant portion of the business is owned by its employees. Instead of being controlled by a few shareholders or a private owner, the employees have a stake in the company—usually through stock ownership programs. This structure makes employees not just workers but also stakeholders, aligning their interests with the company’s performance and success.
How do employee-owned companies work?
In daily operations, this ownership can translate into more collaborative decision-making, greater accountability, and a shared focus on the company's long-term success. While the specifics depend on the ownership model, the general goal is to create a work environment where employees feel invested in the company’s outcomes.
Here’s a breakdown of the most common employee-owned business models:
Employee Stock Ownership Plan (ESOP)
The Employee Stock Ownership Plan (ESOP) is the most common type of employee ownership in the U.S., with more than 6,300 businesses covering approximately 10.7 million employees. Besides Publix Super Markets, other companies that follow this model include King Arthur Flour, Penmac Staffing, WinCo Foods, Brookshire Brothers, W.L. Gore & Associates, and Burns & McDonnell.
In this model, the company creates a trust fund that holds shares for employees. Over time, employees earn shares, usually based on factors like tenure or salary, without having to purchase them.
Shares are allocated to employees and often vest over the years. When employees leave the company, they can sell their shares back to the trust or on the market, depending on the setup. ESOPs provide employees with financial security and can help fund their retirement while boosting morale and productivity.
Worker cooperatives
A worker cooperative is a business model where employees own and manage the company collectively. Every worker has an equal vote in key decisions, regardless of their role or salary.
Decisions, such as setting policies or choosing leaders, are typically made democratically by employee-owners. Profits are shared among the workers based on their contribution or time worked. This model promotes equality, transparency, and collaboration, often leading to higher job satisfaction.
Stock options and other forms of ownership
Some businesses offer alternative forms of employee ownership, such as employee-owned stock, profit-sharing plans, or ownership through trusts.
- Stock options: Employees are granted the option to buy company stock at a discounted rate.
- Profit sharing: Employees receive a portion of the company’s profits, which may or may not involve stock ownership.
- Trusts: In some cases, shares are held in a trust and distributed based on predefined criteria.
Although not fully employee-owned (the majority of the company is owned by Unilever), Ben & Jerry’s allows employees to buy stock and offers them involvement in decision-making through their Community Action Board.
Who controls the business?
Governance in employee-owned companies varies depending on the ownership model. In ESOPs, the company’s management typically runs day-to-day operations, but employee-owners can have a say in major decisions. In worker cooperatives, employees typically participate directly in governance through democratic voting, in contrast to traditional businesses, where decisions are made by a small group of shareholders or executives.
Advantages of employee-owned companies
Employee-owned firms offer unique advantages that benefit both workers and organizations. By tying employees’ success directly to the company's performance, this model fosters a sense of purpose and collaboration while delivering financial and professional rewards. Let’s analyze some benefits of employee-owned companies.
Increased motivation and financial security
“Most employee-owned companies will have long-term financial benefits,” says Sam Mattingly, HR specialist and CEO of the Career Center at JobsInConstruction. “This may come in the form of retirement security, growing equity, profit-sharing, or dividends. This sense of ownership will lead employees to feel financially empowered by the company’s success.” Employees with a personal stake in the business are usually more motivated, knowing their efforts directly impact their financial future.
Enhanced job satisfaction and commitment
Employee ownership also transforms the workplace dynamic. “Employees may feel more purposeful and included in decision-making, which can enhance their commitment to their work and the organization,” Mattingly says. This shared ownership mindset often leads to higher job satisfaction and retention, as employees feel valued and integral to the company’s progress.
Growth and resilience
When employees are deeply engaged in their roles, companies experience enhanced stability and growth. Financial benefits like profit-sharing and equity programs tie employee success directly to the organization’s performance, creating a cycle of mutual benefit that can drive business progress.
Potential drawbacks of employee ownership
While employee ownership offers significant benefits, it also brings its own set of challenges. Understanding these potential drawbacks can help employees and businesses determine whether this model is the right fit.
Financial risk for employees
One key drawback is the financial risk associated with ownership. “In economic downturns, benefits linked so closely to performance make any valuation of ownership even lower,” Mattingly says. This means employees could see their equity or profit-sharing benefits decrease significantly during tough economic times.
Challenges with decision-making
Employee-owned firms often involve a larger number of stakeholders in decision-making processes. While this can foster inclusivity, it may also lead to slower decision-making and difficulties in reaching consensus, especially in larger organizations. Balancing diverse perspectives can be a challenge, particularly in critical moments requiring swift action.
Not a one-size-fits-all model
Employee ownership isn’t universally applicable. Smaller firms or those in industries with volatile markets might struggle to implement and sustain this model. For companies requiring rapid scaling or significant capital investment, traditional ownership structures may provide greater flexibility and fewer complexities.
Possible lack of liquidity
Employees in these firms might face challenges when it comes to accessing their equity. Selling shares or converting ownership stakes into cash can sometimes be difficult, particularly in private companies without a readily available market for their stock. This lack of liquidity could limit employees’ financial options, especially if they rely on their ownership stake as a primary source of wealth.
Is an employee-owned company right for you?
Employee ownership can be an appealing model for many, but it’s not for everyone. Before joining an employee-owned company, carefully consider how well the company aligns with your personal and financial goals. To start, make sure you fully grasp how the ownership model works. Different employee-owned companies may have different structures.
Assess the company’s financial health
Business performance directly impacts the value of employee ownership, so it's essential to assess the stability and growth potential of the organization. In an employee-owned company, your personal efforts can be directly tied to the company’s success, making engagement and collaboration vital to both job satisfaction and financial reward.
It’s also important to understand the specifics of the ownership structure, as this can significantly affect their financial rewards and involvement within the company. For example, vesting periods—the amount of time it takes for an employee to fully own their shares—can vary, and this can impact how quickly employees see the financial benefits of their ownership. Plus, profit-sharing mechanisms can differ between companies, with some offering a portion of the profits as dividends or bonuses based on the company’s performance.
Evaluate if a collaborative environment fits you
Employee ownership isn’t just about receiving financial rewards; it’s about actively contributing to the company’s success.
Reflect on how much you value a collaborative environment where your voice is heard and your contributions are recognized. “If you thrive under conditions where one's voice could be heard and you contribute directly to the firm's success, this model will be a superb fit,” Mattingly says.
The more you engage with your team, provide feedback, and work toward common goals, the greater the impact you’ll have on the company—and your own financial rewards.