It's easy to look at the way things are, and imagine that they have always been this way, or mostly been this way. Things change at such a gradual rate, it can be difficult to really pinpoint paradigm altering events while we are living through them. Take for instance the current presentation of employment based benefits and how they're structured.
Consider whether this sounds familiar? During World War II, the war effort decimated the traditional labor force in America. The competition for workers led to a rise in wages, and, ultimately, creeping inflation. This is the era when the iconic "Rosie the Riveter" emerged, and many women started working for the first time. Despite this, there weren't enough new workers to compensate for the war, and inflation kept getting worse. Then, in 1942, the Stabilization Act was passed.
The legislation limited the ability of employers to freely increase wages in the competition for available workers, and the result was an early iteration of the employment based benefits packages that we all are so familiar with today. By 1943, the practice was commonplace. It was an effective way for companies to lure new workers, and here we are today, where 78% of health coverage plans are employer sponsored.
In today's world, every sector of the economy has felt the impacts of the COVID-19 pandemic, and the dearth of skilled, available laborers. Wages have increased slightly, though, they have not kept pace with inflation. Every company is asking the same kinds of questions. How can we find and hire new quality employees? How can we better retain the employees we have? How do we differentiate our business over competitors? There are no shortage of experts weighing in on these topics, and one possible solution to consider is employee ownership structures.
Common sense might give pause to this idea, especially for small, local business owners. Those companies with a fewer number of employees. However, there are multiple ways for small businesses to share ownership interests with their workers, which can also benefit the company in the process. In an era where retention and attraction of quality workers is so challenging, the concept of converting to an employee owned company is worth exploring.
In the wake of the COVID-19 pandemic, Rutgers University conducted a study comparing companies with majority employee ownership models versus companies with no such structure in place. The survey aimed to distinguish how the two groups faired under the stress of the pandemic and its aftermath. After reviewing it along with two other previous, pre-pandemic studies, the results showed that in employee owned businesses:
- Job loss at a rate of less than 25% of non-employee-owned firms.
- A third (35.5%) of the cut hours for one or more employees; compared to nearly two thirds (62.9%) in non-employee owned businesses.
- A quarter (26.9%) of employee pay cuts, compared to more than half (57.3%) of other firms.
- For every person who lost a job, nearly three people lost their jobs at companies that were not majority employee owned.
- Experienced an increase of 2 percentage points in sales, employment and productivity growth over the same five-year period.
- Across all industries had an average profit margin that was almost 8.5% higher than the average private firm.
- Demonstrate higher than average employment growth, faster post-recession growth and reduced turnover rates.
In the summary of the Rutgers study, it stated the key finding, "Indicates policies that encourage more employee owned firms will provide a future hedge against job loss in economic crisis, thereby reducing the volatility and durability of a negative economic cycle."
There will obviously be some businesses that, for various reasons, cannot convert to an employee ownership structure. No solution is one-size-fits-all. However, exploring it as a means for generating an increase in employee engagement and commitment can only be a good thing for both businesses and workers.
When workers are also sharing in the businesses success directly, they feel more connected to the way their labor generates profits. They feel more connected to the quality of the work they do, and the relationship the company has to its customers. In the ongoing labor force shortage battle, even small to medium-sized businesses should take a look.