Employees Own a Growing Share of Company Stock

CORPORATE America is in the middle of the wrenching process of forging a new labor-management relationship, says Michael Keeling, president of The ESOP Association in Washington, D.C.

Part of that change involves employees buying into the companies they work for. Over the past 15 years, employee stock ownership has soared to record levels in almost every industry. By the year 2000, more than a third of the companies traded on the New York Stock Exchange, the American Stock Exchange, and the over-the-counter market will be more than 15 percent owned by their employees, says Joseph Blasi, a professor at Rutgers' Institute of Management and Labor Relations and co-author of "The New Owner s."

Employees acquire stock through pension, 401(k) tax-deferred annuities, and stock-purchase plans, as well as through company profit-sharing schemes. Booming Employee Stock Option Plans (ESOPs) have given employee ownership a higher profile than it has ever had before. In 1980, about 5,000 ESOPs covered slightly more than 4 million employees in the United States, according to the National Center for Employee Ownership in Oakland, Calif. By 1991, almost 10,000 plans held shares for 11.3 million employees.

As employee ownership ratchets steadily upward, workers expect to have more influence on their companies.

Desire is also growing for a voice in the boardroom itself. "The more employee savings and retirement plans are tied up in their own company's stock, the more [employees] believe they deserve - like any other shareholder - to have a say and a source of information in the boardroom," Professor Blasi says.

The courts are reinforcing this trend. Recent decisions have held that ESOP shares have to be voted by workers themselves rather than by management-appointed ESOP trustees. "There is a definite move in employee ownership to emphasize direct worker votes on stock," Blasi says.

THE market value of an ESOP, which holds the stock of a single company, rises or falls with the improvement or decline of that company's fortunes. As the profitability of American corporations came under pressure during the recent recession, the value of stocks held by ESOPs experienced new volatility. This put tremendous pressure on the trustees who run ESOPs to become more aggressive in obtaining financial information from the company. The information is used to gauge whether the workers' investment is

being maintained and protected.

ESOP trustees are "becoming more activist in evaluating the financial performance of companies and wanting to know about material changes," Blasi says.

In an ESOP Association poll of 500 corporations with ESOPs, 56 percent of the companies say their ESOP has improved employees' productivity. But many critics reject the idea that ESOPs can significantly improve the quality of employee input and thereby overall corporate performance.

To determine how employee-ownership companies measure up against the rest of the field, Professors Blasi and Douglas Kruse of Rutgers, along with Michael Conte of the University of Baltimore, created an Employee Ownership Index of 265 stocks. These are public companies in which employees own more than 10 percent of the outstanding shares.

So far this year, the index is outperforming all published market averages, all industry groups, and all mutual fund groups, Blasi says. He cautions, however, that there is no systematic proof that employee ownership makes companies perform better.

"There is evidence that when employee ownership is combined with practical problem-solving teams that work on productivity issues then you do see a significant change in performance," Blasi says.

Mr. Keeling of the ESOP Association agrees. Unless management commits to an across-the-board ownership culture, he says, productivity and competitiveness will not improve.