It’s an oft-repeated talking point, but one that is true nonetheless: Small business is the backbone of the American economy. Employing 48 percent of our nation’s workers and making up 99.9 percent of all U.S. companies, small businesses are job creators, innovators, and the builders of a more prosperous future for workers and communities.
When I talk to New Hampshire small business owners about their firms, I know that we’re not just discussing dollars and cents — we’re talking about a passion, a mission and a legacy. A key part of supporting small business owners is providing them a path to enjoy the fruits of their hard work in retirement while preserving that legacy. Through employee ownership, it’s possible to do both.
Running a small business is not only a vocation, but also an investment in the future. In a February 2017 survey of small business owners conducted by Gallup, more than 1 in 4 reported that the sale of their business would be a major source of their retirement income. Selling to an S-corporation employee stock ownership plan (S ESOP) ensures that owners receive this income, while also strengthening the company for the future and ensuring that workers are taken care of. Employees receive ownership shares at no cost to them, providing a well-performing, secure source of retirement savings.
Owning a piece of the work they do gives employees a stronger sense of investment and accountability. The results can be seen in the workplace, where employee-owners build greater knowledge capital and have shown higher rates of loyalty and hard work, and in their everyday lives, where they report greater confidence in their financial outlook.
Employee ownership also forces managers to think in terms of long-term benefits to employee-owners, rather than tailoring decisions to the short-term gain of shareholders. These factors all make S ESOP companies stronger.
This stronger performance is readily apparent in the marketplace. For example, while U.S. nonfarm private employment grew by 8 percent from 2002 to 2015, employment at S ESOPs in continuous operation since 2002 grew by 37 percent. Even in 2008, in the midst of the Great Recession, S ESOP employment still grew by nearly 2 percent, while overall U.S. employment declined by 2.8 percent. Even loan defaults occur at far lower rates at ESOP companies. An owner looking to secure a solid financial future for both employees and the company itself can hardly do better than to transition to the S ESOP model.
If there was ever a moment for our nation to expand employee ownership, this is it. A recent Employee-Owned S Corporations of America (ESCA) survey shows that 75 percent of Americans are worried about having enough saved for their retirement. A wave of baby boomers, many of them small business owners, is approaching retirement still in search of answers for retirement prosperity. S ESOPs are tested, proven, high-performing retirement vehicles, providing a path forward for exiting owners and workers alike.
With the surge of momentum that pushed tax reform legislation through last month, Congress has worked to raise wages, incentivize investment and lift tax burdens on America’s job creators and workers. Now, it is time to address retirement as well.
A bill currently before Congress, the Promotion and Expansion of Private Employee Ownership Act, charts a bipartisan course toward expanded access to the S ESOP model for more of America’s small business owners and employees. As a former U.S. senator, I can tell you how rare it is to have a piece of tax legislation that garners as much bipartisan consensus as the Senate bill, S. 1589, has in the 115th Congress, with over 30 co-sponsors from both sides of the aisle.
S ESOP employee ownership is a commonsense solution to the retirement and ownership transition issues facing so many in this country, and I urge more Republicans and Democrats to come together and ensure that it remains so for even more Americans.
When a solution is so clear, with such a wide base of support, we cannot afford to delay in pursuing it. America’s small business owners are counting on Congress to step up to the plate and ensure that employee ownership is an option for the millions of small business owners looking to see their great work carried on. Small business owners support our economy through risk-taking and hard work every day. Now, it’s time for us to support them, and pass this bill.
John E. Sununu served as a Republican U.S. Senator from New Hampshire from 2003-2009 and as a member of the U.S. House of Representatives from 1997-2003.
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