Firms Do Better With ESOPs

May 7, 2001 ( - Employee Stock Ownership Plans (ESOP) appear to increase sales and employment by between 2.3% and 2.4% per year, according to Rutgers University researchers.

The research, conducted on closely held companies, found that ESOP companies are also more likely to continue operating independently. They are more likely to have other retirement-oriented benefit plans than comparable non-ESOP companies.

Apples to Apples

The study examined companies establishing ESOPs between 1988 and 1994, matching companies with ESOPs to comparable ones without ESOPs using Dun and Bradstreet data.

Sales and employment at these companies were compared for three years before and after the plan’s introduction. Some 343 companies were represented in the sample.

However smaller samples were taken for each of the specific measures.

The results indicated that ESOP companies have:

  • sales growth that is 2.4% per year faster in the years following their ESOP than would been expected, when compared with non-ESOP companies
  • employment growth of 2.3% per year
  • 2.4% per-employee sales growth.

Die Hards

In addition, the study examined whether ESOP companies stayed in business longer than their non-ESOP counterparts. Out of the 343 companies:

  • almost 78% survived through 1996, compared to 62.3% of the non-ESOP companies
  • almost 70% survived through 1999, compared to 54.8%.

The research also found that:

  • just over 20% of ESOP companies sponsored defined benefit plans, compared to 4.9% of non-ESOP companies
  • a third of ESOP companies offered 401(k) plans, compared to 6.2% in the other group
  • almost 36% of ESOP companies also had profit sharing-plans, compared to 8%
  • just under 15% sponsored other DC plans compared to 2.3% of non-ESOP companies.