A grocery store meat cutter with $2 million in a retirement account is almost unheard of in the United States. But at WinCo Foods, it’s no surprise. A vast majority of WinCo’s 15,000 employees have just a high school education, but most of them are fully vested in the company’s retirement plan.
It’s all possible because WinCo is an employee-owned S corporation that uses an employee stock ownership plan, or “ESOP.” The defined contribution retirement plans give employees savings through their investments in the company’s stock, with all contributions coming from the company.
It gives WinCo’s employees a “true culture of ownership” and a great competitive advantage, according to Mike Read, WinCo’s Vice President of Public and Legal Affairs.
Read says WinCo is proud of its employee-owned status, and the company’s website shows it. “An Employee Owned Company” is placed prominently below “WinCo Foods” on the homepage.
Wednesday’s second annual National Press Club Roundtable on ESOPs highlighted the success of these plans around the country as various business leaders shared their experiences.
For a 100-year-old family company that was owned by three different generations, the transition to an ESOP made the most sense when the next generation wasn’t interested in taking over the business. Rather than sell to outsiders, Dallas-based Austin Industries used an ESOP to sell gradually to their own 6,500 employees.
“People who build the company should enjoy the benefits of it,” said Charles Hardy, who worked with Austin Industries for 30 years. Hardy said the company uses the ESOP structure as a recruitment and retention tool for employees, as well as a selling point to its customers. Since the change in 2000, the company’s stock price, revenue and number of employees have all gone up.
From 2002 to 2012, ESOPs outperformed the S&P 500 Total Returns Index by 62 percent, according to Ernst & Young’s Quantitative Economics and Statistics practice. ESOPs also paid more benefits per participant than 401(k)s over the same period. Net assets increased by over 300 percent.
Even in a political climate that seems increasingly partisan, the ESOP section of the tax code enjoys bipartisan support. Both Rep. Richard Neal, D-Mass., and Rep. Erik Paulsen, R-Minn., were on hand at the roundtable on ESOPs to express their support. “The bipartisan component of this is very real, very important,” Paulsen said of support for ESOPs in Congress.
Joseph Blasi, a Rutgers University professor and sociologist, was present to talk about his book, The Citizen’s Share. The book argues that employee ownership of businesses is a concept the founding fathers believed was the best economic plan. Its cover has praise from none other than Thomas Piketty, the nemesis of conservative policy wonks. “America used to be based on broad access to wealth and property,” Piketty wrote. “If you want to know more about this tradition, and how to revive it, read this book.”
Secretary of Labor Thomas Perez even praised ESOPs at a House workforce committee hearing in March. “[ESOPs are] a model that I think has had real success in building wealth for working people across this country,” Perez said.
With bipartisan praise, ESOPs are pitched as a solution to numerous problems: income inequality, retirement woes, employer-employee disputes, outsourcing and more. The biggest obstacle to more ESOPs appears to be that businesses simply aren’t aware of this option, or that the concept is legal.
