Employee ownership can preserve local businesses, community wealth

Economics professor Matthew Metzgar researches employee-owned businesses and offers his insights as to why they are beneficial.
Wednesday, November 2, 2022

Charlotte’s critics often point to the constant evolution of corporate-based development projects as a deterrent to the city’s history and charm. Legacy businesses are frequently the victim of the city’s growth. Long-standing community establishments disappear at a rapid rate — displacing  local ownership and wealth.

matthew metzgarOne way to preserve local businesses and community wealth is through employee ownership. Employee ownership is a concept which can benefit owners, employees, and their communities. Instead of selling small businesses to outside investors or corporate developers, business owners can sell their companies to employees.

What benefits does employee ownership have for a community? How does this trend affect the racial wealth gap? Matthew Metzgar, clinical professor of economics at UNC Charlotte, analyzed employee ownership and its effect on business owners, employees and the communities they serve.

What is employee ownership and what is the issue facing small businesses in Mecklenburg County currently?

The issue facing Mecklenburg County is the same issue that counties are facing nationwide: there is an upcoming wave of business owner retirements. This retirement of the Baby Boomer owners is often referred to as a “silver tsunami”. When these owners retire, employee ownership should be considered as a one potential exit strategy.

Employee ownership is when the employees themselves own the business, as opposed to a single owner or a corporate structure. Employee ownership generally takes three forms: worker cooperatives, Employee Stock Ownership Plans and Employee Ownership Trusts.

How does it benefit employees?

Whereas an employee usually only receives compensation through salary and benefits, employee ownership gives the worker a share of the company’s profit. Research has shown this increases worker wealth across all types of demographics. Workers will also have more say in company decisions which can lead to increased health and work-life balance.

How does it benefit companies?

First, employee ownership gives companies tax incentives as compared to traditional ownership structures. Second, employee-owned companies often have lower rates of turnover which helps the company sustain over the long run. Third, employee-owned businesses often have greater productivity and efficiency as the employees are more engaged.

How does it benefit society?

First and foremost, employee ownership keeps the profits of the business in the local community. It allows the individual workers to build wealth in addition to their wages. Second, it may allow communities to maintain their legacy businesses. In some cases, there are no interested parties in buying these older businesses, and often the businesses would simply close.

Employee ownership offers a new path for these legacy businesses, by transferring ownership of the business to the employees. This keeps the business open, keeps the jobs intact and allows the workers to receive a portion of the company’s profit going forward. 

What risk is involved?

Employee ownership is not a perfect fit for every business situation. A business should be in good financial health if it is to transition to employee ownership. The payback period may be longer and may involve more risk than if an owner sold immediately to another individual or group.

In what ways can it reduce the racial wealth gap?

Our study focused on how employee ownership can potentially reduce the racial wealth gap. Employee ownership boosts individual wealth and can increase the likelihood of intergenerational wealth transfers. This can potentially break cycles of poverty and reduce racial wealth gaps. There is a large wealth gap by race in Charlotte, and we view employee ownership as a particularly effective tool to reduce this gap.

How does the employee ownership idea expand?

We hope our study increases awareness of this ownership structure. Greater publicity for employee-owned businesses that already exist in Charlotte is important as well. When businesses can see local examples of a successful transition to employee ownership, this increases the likelihood they will consider that option.

What resources are available for business owners and employees to use to gain a better understanding of employee ownership?

The North Carolina Employee Ownership Center is a one-stop shop for anyone considering employee ownership. There are a number of local providers in Charlotte that can help businesses explore or transition to employee ownership.