How can business owners increase employee productivity and retention while growing a business’s profitability?
There has been a growing interest in employee ownership as a way to retain local businesses, sustain good-paying jobs, and help small to medium-sized businesses weather recessions.
As of 2016, there were about 350 of these businesses in the US. In a worker cooperative, the employees own a majority of the company’s equity and they each have a democratic voice. One employee, one vote.
There are a variety of pathways to this business model from starting the business as a worker co-op to converting an existing business. In the latter situation, the business owners may plan to stay actively engaged in day-to-day operations, or divest as they transition into retirement or turn their attention to another business venture. In each situation, a worker co-op has benefits for the employer and employees as well as the community as a whole.
According to an analysis of North Carolina businesses by the NC Justice Center, our state has up to 23,000 businesses that are good candidates for this option.
What makes a business a good candidate to transition to an employee-owned company?
If a business is privately-owned and medium-sized (a few dozen to a few hundred employees) and has a strong track record over 15 years, the business owner may want to consider a conversion to a worker cooperative.
Here are some advantages to both the business owners and employees:
Gain Tax Advantages: The IRS allows business owners to defer capital gains taxes when selling the business to employees when they sell 30% or more of the business interest. The money from the sale of the business must be invested domestically and capital gains are paid only once the investments are sold.
Retain local industries and businesses: Especially in rural areas, when a business owner retires with no clear succession plan, the local economy suffers. Worker co-ops can bridge that gap. It also affords an opportunity for local business owners to see their legacy carried on by the employees who helped to make the business a success. The profits from the business continue to flow into the local economy.
Promote Diversity and Inclusion: The face of NC businesses is changing, and employee ownership helps to accelerate this process even more. According to a report by Project Equity, “60% of new worker-owners since 2010 are people of color” and “68% of total worker-owners are women.”
Improve Employee Recruitment and Retention: According to Nonprofit Quarterly, “employee-owned companies had ‘half the layoffs as non-employee owned firms in the last two recessions.’” For Kindermusik, Greensboro-based business, “ [an] employee-owned culture is reportedly the No. 1 recruitment attraction among new hires.”
Employee-Owners Propel Success: With skin in the game, employees work smarter, help the business to innovate, are more focused on cost-savings, and are more likely to hold each other accountable.
To learn more about the viability of converting your business to a worker cooperative, you can contact these organizations for guidance: The National Center for Employee Ownership offers free resources to help businesses weigh this option. Project Equity offers free consultations for businesses as well as case studies and research.