So, what will have greater impact for raising income levels, improving saving levels and hence wealth and retirement security with the possible added benefit of improved on the job performance and productivity (and the extra value of demonstrating free market concepts), a new $500 tax credit or an ongoing financial stake in your employer⁉️
I rarely, (ok, never) agree with the CAP, but in this case having benefited from these types of programs and having seen how they can be used to align and motivate workers, I have to say this concept has a great deal of merit for both employer and employee and the economy. Over my working career I participated in a TRASOP, ESOP, stock purchase plan, and stock options at various times (as did most other employees including represented employees [except the options, but they did have performance incentives]). All these plans contributed to my wealth, my retirement security and yes, to my job performance to some extent. [1]
There is an added benefit in all this. The public perception of corporations should improve. I think there is a valid argument that workers have an investment in their company as do shareholders and thus should share in the profits. Worker investment may not be cash, but the value created for shareholders is at least partially dependent on worker performance. While shareholders can lose their investment, workers can lose their job and economic security if a company does not thrive.
We need creativity in this effort and the tax code to support it. For example, let’s give notational (on paper only) shares of stock to each employee and then pay them dividends based on those notational shares. Let them reinvest the dividends, grow their “shares” in the process just as true shareholders. As an added benefit make the dividend tax-free up to middle-class income levels if dividends are held for a certain period of time.
Here’s a good idea that I’d like to see prominent in President Barack Obama’s State of the Union speech tonight: shared capitalism. That is, stock-ownership plans or simple profit-sharing schemes for corporate employees. These plans have been shown to effectively align workers’ incentives with those of the company’s equity owners, but they have not received much attention lately.
The idea has been resurfaced, however, by a commission formed by the progressive Center for American Progress, co-chaired by Lawrence Summers, a veteran of the Obama administration (as I am), and Ed Balls, a leader of the British Labour Party.
Economists used to worry that shared-capitalism plans would cause shirking: If each worker receives a share of the company’s profits regardless of individual effort, it might create an incentive to let someone else do the hard work. Collectively, then, the workers don’t do enough work. But a 2008 study found the opposite, that shared-capitalism plans lead workers to encourage one another to be more productive. In surveys of workers taken before and after their company adopted a profit-sharing plan, Douglas Kruse and Joseph Blasi of Rutgers University and Richard Freeman of Harvard University found that afterward, workers said they were more likely to intervene with a lazier co-worker or report the situation to a manager — because not doing so would cost them money.
Other analyses have found that shared-capitalism plans reduce turnover, improve workers’ job satisfaction and raise their compensation. In a separate study, Kruse, Blasi and Freeman examined shared-capitalism models within Fortune magazine’s “100 Best Companies to Work For in America.” They found that even among companies distinguished by their good labor practices, employees of those that “make more extensive use of group incentive pay” get more involved in company decisions, share more information with one another, trust their supervisors more and “report a more positive workplace culture.”
via In State of the Union, Obama Should Push to Give Workers a Stake – Bloomberg View.
[1] The impact on productivity, etc. is totally dependent on the understanding by workers of their organization. This requires extensive and ongoing communications. Workers must understand how profits are generated and how they and their fellow workers impact corporate operations. And needless to say, the potential gain from sharing programs must be meaningful.
QUINNSCOMMENTARY 
Sounds good; not reality. No study of ESOPs shows that they consistently deliver that added commitment or engagement among all employees who are also stockholders.
As a means of rewards, an ESOP would be fine – but for recent Supreme Court decisions about employer stock ownership and fiduciary duties. Last year, the Supreme Court ruled in Fifth Third Bancorp v. Dudenhoeffer, that there is no “presumption of prudence” for fiduciaries of plans that invest in employer stock. ERISA expressly exempts ESOP fiduciaries from the requirement to diversify investments. However, overturning 20+ years of precedent, the court ruled that ERISA does not allow courts to presume that continuing to invest in employer stock is prudent, even if the plan document REQUIRES such an investment. As you know, plan administrators/fiduciaries are required to administer a plan to its terms – and there is no discretion there if the only investment option allowed by the plan document is employer securities. Instead, the Court explained that “the duty of prudence trumps the instructions of a plan document, such as an instruction to invest exclusively in employer stock even if financial goals demand the contrary.”
My point is that even if the Obama Administration embraced ESOPs (which they will not), some would think it a ploy to generate revenues for the plaintiff’s bar. Think of the millions of named plaintifs, the class actions, etc.
Even now, today, if you have an ESOP, where the written document says the only investment is employer securities (at least until the age where diversification is allowed), if you are the plan fiduciary, you are supposed to be able to make decisions to suspend the requirement to invest in employer stock. Like you are supposed to be prescient or omnicient. Under such circumstances, who would be willing to be a fiduciary? And, if this is to apply to employer securities, how about everyday mutual funds … and what if the fund recovers and goes on to post dramatic gains? Sometimes they do, you know!
I know one fiduciary who is still concerned about a decision they made about employer stock. Seeing all the litigation starting up all around them in the mid-2000’s, they convinced the plan sponsor and plan fiduciaries to amend the plan to drop employer securities as an available option. Now, they still worry that someone will challenge that decision, even though the six year statute of limitations usually applied to ERISA claims has run (see current Supreme Court case Tibble v. Edison where the district court dismissed the case and the U.S. Court for the Ninth Circuit affirmed the dismissal on the basis that the investments were selected more than six years earlier and were therefore barred by ERISA statute of limitations … however, in accepting the writ, the supremes will specifically consider whether ERISA’s six-year limitations period begins on the date that the investment committee initially selected the higher-cost mutual fund options for the Plan’s investment portfolio or whether the on-going offering of such funds (or perhaps the impact of dropping employer stock) constituted a “continuing” fiduciary breach, thereby extending the period.)
There, the value of the employer stock went up, significantly, not down as a result of a decision to take the employer private just two years later. While no fiduciary had any information about the potential corporate action, keep in mind that many lawsuits are often about shaking the tree to see what will fall in the way of a settlement. They call them reverse stock drop suits.
Bottom line, any decision to offer investments in employer stock in an ERISA plan, can result in a legal challenge that will significantly overwhelm any favorable improvement in employee engagement – even if it is the employer’s money, not the employee’s contribution.
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If I didn’t know better I’d think you were a lawyer 😜. As u saw in the post, I mentioned that ownership by workers would not work without extensive and ongoing communication and reinforcement. If nothing else it is a way to create some wealth.
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