Effect of COVID-19 on Employee-Owned Firms

Thoughtware Article Published: Dec 02, 2020
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The Employee Ownership Foundation partnered with Rutgers University School of Management and Labor Relations to conduct a study to examine COVID-19’s effect on employee-owned companies compared to other firms. The study investigated several different areas of impact, including job retention, pay, benefits, and workplace health safety.

The study, titled “Employee-Owned Firms in the COVID-19 Pandemic: How Majority-Owned ESOP & Other Companies Have Responded to the COVID-19 Health and Economic Crises,” includes interviews with 247 employee-owned firms and 500 other firms (representative of companies with 50 or more employees). It was conducted from August 5 through September 23 of 2020. Below are some key findings:

  • Employee-owned companies were between three and four times more likely to retain staff, at all levels, compared to the other firms. The employee-owned companies averaged a 4.8 percent reduction in workforce, while the other firms surveyed reported an average 19.5 percent reduction.
     
  • Approximately one-third (35.5 percent) of the employee-owned companies surveyed reported having to cut employee hours, while approximately two-thirds (62.9 percent) of other firms surveyed reported a cut to employee hours.
     
  • Of the employee-owned companies surveyed, only 26.9 percent reported a cut to employee pay compared to 57.3 percent of other firms surveyed. However, of the companies that reported a cut in pay, pay cuts at employee-owned companies tended to be higher than the other firms (41.3 percent versus 28.6 percent). These deeper cuts are likely attributable to management salaries rather than hourly wages.
     
  • While the Paycheck Protection Program (PPP) was effective at improving employee retention in both employee stock ownership plan (ESOP) and non-ESOP companies, ESOP companies that didn’t receive PPP loans had higher retention rates than non-ESOP companies that did receive PPP loans. ESOP companies that didn’t receive PPP loans laid off employees at a rate 3.2 times lower than non-ESOP companies that did receive PPP loans.
     
  • Employee-owned companies were more active in setting up protective health measures for their employees. Of the employee-owned companies surveyed, 98.3 percent took preventive measures compared to 88.9 percent of the other firms. There also was a difference in the timing of these measures. More than half (53.7 percent) of the employee-owned companies established preventive measures by March compared to 41.3 percent of the other firms. These protective measures included working from home, providing masks and gloves, and providing additional sanitizing and professional cleaning.

This study strongly supports the resilience of employee-owned companies during difficult times. Employee-owned companies are outperforming other firms in many key areas such as job security and salary retention. From a public policy perspective, encouraging employee ownership can provide a future hedge against job losses in an economic downturn.

The full results of the study can be found on the Employee Ownership Foundation’s website. To learn more about ESOPs, reach out to your BKD Trusted Advisor™ or use the Contact Us form below.

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