Employee Ownership and Participation Effects on Firm Outcomes  - CLEO Skip to main content


Hundreds of firms in the U.S. are majority-owned by their employees through Employee Stock Ownership Plans (ESOPs). While there have been many studies on whether such ownership improves firm outcomes, this one attempts a larger-scale replication, looking also at effects of worker participation in management-type decisions. Many theorists have suggested that the rarity of employee ownership is prima facie evidence that such firms could not be as efficient as traditional firms, because otherwise they would be more common. But institutional and financing constraints may be a more realistic explanation for their rarity, and it is important for policy purposes to investigate efficiency objectively.

A panel of over 300 majority-employee-owned (EO) firms in the United States, in various industries and of a wide range of sizes, was established, and a panel of traditionally-owned (KO) firms closely matching the EO firms in size and industry obtained. All the EO firms, and nearly all the KO firms, are privately held; the only ‘productivity’ data available are sales per employee, and this measure is used.

Managers at about 150 of the EO firms responded to a mail questionnaire asking them to report the extent of non-management employees’ control over their work situations, wages and benefits, and other company policies. The management-to-worker ratios reported in the responses, together with a ‘worker-control’ index developed from those responses, are used to determine worker participation effects.

Sales per employee was calculated for each EO firm, and for each matching KO firm (for multiple matches, an average sales per employee for the group of matching firms is used). Using a matched-pair differences test, sales per employee is substantially and significantly higher for the employee-owned group of firms. This ’employee-owned advantage’ is significantly greater among smaller firms, and (holding firm size constant) improves as the dollar value of the average employees’ ownership stake in firm stock goes up. Holding both firm size and employee stake constant, the employee-owned advantage is substantially (though not significantly) greater in the large group of firms which are 100% owned by their ESOP Trusts.

While higher worker-participation scores improve the employee-owned advantage, these results were not significant; further study is needed to determine whether some of the underlying information from survey responses may have more predictive value.

Resistance to broadening employee ownership may come in part from academic arguments that such a structure must reduce firm (and thus social) efficiency. This study belies those unjustified theoretical arguments. Broader employee ownership and employee participation in firm management, which have intrinsic social benefits, improve firm outcomes—and thus social welfare—as well.