ESOP: Taking stock of your future by owning a piece of your company

The legend of Charlie Valentine still echoes among employees at Lowe's Companies Inc. Earning only $125 a week, the warehouse worker retired a few years ago with over $400,000 in his pocket.

As a retirement sendoff, that beats a gold watch. Charlie was an employee-owner of the North Carolina-based retail chain, and his share of Lowe's stock had grown over tenfold by the time he left.

Under President Reagan's 1981 Economic Recovery Tax Act, more American workers will be getting ''a piece of the action'' - or capital - in their companies. The law widens a tax credit for US firms which set up Employee Stock Ownership Plans (ESOP).

ESOPs became popular seven years ago when US Sen. Russell Long, then-chairman of the Senate Finance Committee, became interested in the possibility of workers-as-capitalists leading to greater on-the-job productivity. He was able to get passed a law providing a 1 percent tax credit to capital-intensive companies establishing ESOPs until 1982.

The new tax act will allow labor-intensive companies to set up ESOPs using a tax credit based on payroll. The credit starts at 0.5 percent in 1983 and rises to 0.75 percent by 1987. Congress will then assess its effect.

Currently, about 4,500 ESOPs are in existence, covering an estimated 6.25 million workers, or about 16 percent of the over-25 work force. One of the latest uses of ESOPs was this year's purchase of a General Motors plant by its workers in New Jersey.

In a normal ESOP, a company sets up a trust fund for employees to buy company stock with borrowed money. The paid-in capital goes to expand company business, such as a new plant. The corporation then pays off the loan, and the stock can serve as a source for retirement income.

The new law also allows a company to take on more debt to finance an ESOP, lessening the competition with pension funding in a firm's debt structure, says Luis Granados, counsel to the ESOP Association of America.

''For a small company with no pension plan, an ESOP is about all that it has for its workers,'' says Mr. Granados.

But should employees count on ESOPs for their entire retirement assets? Probably not. Many a company goes out of existence within a person's working life. But a portion of workers' pensions can rest on their company stock, especially if there is good chance of the stock value steadily going up.

In companies such as Lowe's, where business in the Southeast has grown tremendously, workers have been given a bonanza. The company switched from a profit-sharing plan started in 1957 to an ESOP in 1978.

''The ESOP is our major long-term benefit plan, but we don't present it as a pension,'' says Edgar M. Spears, Lowe's director of personnel administration.

A typical Lowe's worker making $12,000 a year could, for instance, be given about $1,800 a year in stock. As the stock price rises, so does the employee's dividends and stock value. About 10 percent of Lowe's stock is now ''ESOPed.'' In a few years, says Mr. Spears, employees may own as much as 60 percent of their company.

Nationwide, union leaders are ambivalent about the role of ESOPs in bridging the gap between workers and owners - since both are all or partly the same in a company. A few ESOPed companies have folded, and some have had workers go on strike - essentially against themselves as stockholders.

''Unions are rethinking their strategy, since some may be asked to accept ESOPs in lieu of big wage increases,'' says David Peckman of the Employee Benefits Research Institute.

The expected increase in ESOPs under the new tax act will raise a number of questions for employees, says Mr. Peckman, who is now preparing a study on ESOPs for the institute. Studies differ on whether worker-ownership improves productivity.

The biggest question, he says, is whether ESOPs are really retirement funds or not.