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How ESOPs Help Narrow Gender and Racial Wealth Gaps

Industry Trends and Research

In a new study of low- and moderate-income workers at employee-owned companies, researchers affirmed that employee stock ownership plans (ESOPs) enable families to significantly increase their assets, helping to shrink gender and racial wealth gaps.

The three-year research project conducted by the Rutgers Institute for the Study of Employee Ownership and Profit Sharing and supported by the W.K. Kellogg Foundation found that ESOPs can support the asset building of low- and moderate-income employees, leading to increased retirement security when compared to national figures. 

The researchers interviewed nearly 200 employees at 21 companies that offer an ESOP retirement account, with half of the workers surveyed defined as low-income or moderate-income based on earnings. The findings suggest that employee-owned firms weld together five specific elements that work in tandem to enable workforce asset building: 

  • building ESOP account equity and financial knowledge; 
  • expanding workforce capabilities through on the job training, external education and internal mentoring; 
  • enabling asset preservation and personal investments; 
  • increasing access and inclusion by gender, race and ethnicity; and 
  • improving health and well-being through quality of work life experience and balance. 

With the ESOP giving them significant wealth far above their wages and other income, the study found that the low/moderate-income workers have ESOP account values ranging from $15,000 to $6 million, with a median value of $165,000. By contrast, the typical American household has just $17,000 in savings, the study notes. What’s more, of the low/moderate-income workers surveyed who have an ESOP, those closest to retirement (ages 60 to 64) have 10 times more wealth than the typical American in that age group. 

The authors further emphasize that women and people of color in the ESOP study are faring much better than women and people of color nationally in building wealth. They observe that, while wealth gaps still exist among the employees in their sample, the gaps are far less pronounced than in the general population. Moreover, many low/moderate-income workers – especially single women – told researchers that the ESOP gives them a sense of economic security and enables them to think about retirement for the first time. 

“Past research showed that employee-owned firms perform better on average, but we didn’t know much about what employee ownership means to regular employees,” notes Douglas Kruse, Distinguished Professor and Associate Director of the Institute. “This study provides rich data from the perspective of workers about the many ways in which employee ownership transforms the workplace.” 

The research team conducted the interviews from June 2015 through August 2018. The 21 companies ranged in size from 75 to 18,000 employees.