Employee Ownership: An Overlooked Tool
An investigation of the regional idiosyncrasies of employee ownership as a response to outsourcing and community displacement in Ohio, and its implications for the broader global economy.
Cooperation Jackson presents on their mission for Black, independent, working-class power at the 2023 Woodhill Community Co-Op Conference in Cleveland, Ohio.
By Bryce Springfield ‘25
Employee ownership dates back to the Industrial Revolution with the formation of worker owned and managed cooperatives in 1760 led by artisans seeking to control their jobs “rather than merely carrying out orders.” With economic development in San Francisco in the 1950s, the employee stock ownership plan (ESOP) model also developed as a retirement plan. In Ohio, a state with a rich industrial history, employee ownership provides an opportunity to empower workers with better working conditions and a sense of autonomy, while fostering economic development that stays in local communities. By offering employees a direct stake in the success of their companies, employee ownership models align workers’ interests with their businesses’, foster long-term goal-setting, and benefit workers and their companies alike.
Worker-owned cooperatives and ESOP firms are two of the most important employee ownership models, as both promote shared purpose and greater commitment among workers, providing economic and workplace benefits to employees and fostering long term economic health in local communities. Depending on the specific ESOP, employee ownership and control may be limited, whereas worker cooperatives always use the one-worker, one-vote principle to enable equal democratic decision-making. However, governance structures can still vary across worker co-ops as well: in some worker co-ops, workers may elect board members who then elect management, while another co-op’s workers may actively participate in the governance and management of the firm. Moreover, co-ops often use resource-pooling and profit-sharing to reduce ownership costs for individuals, expanding access to financial capital among workers. This structure can empower individuals from diverse backgrounds, contributing to broad social development, democratic values, and economic prosperity.
Employee ownership creates value beyond individual companies and workers. Studies have shown that employee-owned businesses tend to exhibit higher levels of productivity, increased job satisfaction, and reduced turnover rates, among other benefits. Cooperative business models feature democratic governance structures, which can facilitate better working conditions and eliminate wage disparities between workers and owners. By contrast, CEOs at the biggest publicly traded companies in Ohio were paid 273 times as much as their median worker in 2022. Data from the Democracy at Work Institute suggests that as of 2017, worker co-ops in the Midwest region averaged a top-to-bottom pay ratio of 1.66-to-1 and maxed at 5.19-to-1.
These outcomes contribute to both greater economic stability in the workforce and broad community-level benefits. Policies that foster employee ownership can raise workers’ income and foster more equitable income generation across race and gender. For places like Ohio—where the exit of major manufacturing employers has devastated once thriving cities, leaving Ohioans struggling to recover from recessions—employee ownership builds strong resources rooted in local economies, which may be more challenging to reverse than many comparably valuable social programs.
Workplace democracy can also enhance civic engagement by reinforcing the importance of democratic principles, providing professional development opportunities, and translating worker power into political power. Data from the Democracy at Work Institute suggest that worker-owners of co-ops in the US who participated in at least one governance activity in the five years from 2012 to 2017 were 27 percentage points more likely to vote in the 2016 elections and 28 percentage points more likely to vote in the 2014 midterm elections than those who did not.
Other analyses suggest that cooperatives are less profit-driven than traditional companies, leading to more efficient use of resources and less reliance on extractive practices. Because co-ops often emerge in response to an unmet community need, they have greater accountability to their local communities, and the value of their work outweighs potential profits. Additionally, since workers are often disproportionately affected by pollution and climate change, employee-owned firms are more likely to make more ecologically conscious decisions.
Case Studies
Ohio is home to inspiring employee ownership enterprises. Here are some of their stories:
Pattycake Bakery
Pattycake Bakery began in Columbus in 2003 from one person working out of her kitchen with a vision for a bakery designed to satisfy sweet tooths with novel vegan recipes. When the bakery received its first wholesale client—a consumer-owned co-op—Pattycake started bringing in new employees. Pattycake incorporated participatory characteristics for its first decade but faced challenges in figuring out how to transition to a fully cooperative model.
By 2013, employees at Pattycake Bakery received the legal, financial, and logistical aid to help the transition. Pattycake’s founder arranged for an employee buyout—or conversion—of the firm, aided by the surplus produced by workers and saved in internal accounts. Workers secured a loan from the Shared Capital Cooperative, a consumer-owned credit union, to finance their relocation to a new, larger building. The interest on the loan supports the growth of other worker cooperatives, offering an alternative to traditional lending options with unfair policies that can hurt Black- and Brown-owned businesses’ access to capital—another reason the workers chose to partner with Shared Capital.
Following the conversion, Pattycake’s growth led to the decision—made using a consensus democracy model—to relocate to a more spacious building. The transition was bumpy at times due to the complex legal framework for cooperative conversions, characterized by challenging laws that limit cooperative development. Moreover, most business development resources are oriented toward traditional entrepreneurship forms, and there are few “rule books” to guide cooperative conversions. However, the conversion was an ultimate success thanks to support from groups with services tailored to the unique needs of co-ops.
In addition to loans provided by Shared Capital Co-op, Pattycake received financial and legal support from the Employee Ownership Center at Kent State University, which one worker called “absolutely foundational” to the co-op’s success. The United Federation of Worker-Owned Cooperatives, which works to build democratic workplaces across the United States through training and advocacy, helped expand the healthcare benefits Pattycake workers receive. Finally, the AORTA Collective supported Pattycake in their development from learned experience. Cooperation across co-ops is common, further reinforcing how the cooperative model’s leading principles generate social benefits beyond business growth.
Despite the challenges, engaging in a democratic process to make difficult decisions—along with the collective values and goals developed throughout the process—enabled the worker-owners to feel like a true team. While many worker cooperatives are managed as more indirect democracies, Pattycake gives all worker-owners a direct say in major decisions, with committees to split some of the work. As worker-owner Molly Shea explained in a personal interview, Pattycake Bakery’s conversion was a collaborative process. Its worker-owners themselves invested time and developed the entrepreneurial skills to make it work. Today, 30 to 50 percent of profits are directly paid back to worker-owners, and the rest are reinvested in the co-op.
Pattycake Bakery remains deeply rooted in the Columbus community, where the co-op makes donations and hosts fundraisers for various community events such as bowl-a-thons, supports organizations including the Central Ohio Worker Center, engages its workers in ballot measure campaigns, and more. The co-op aims to continue making a positive impact on the Columbus community by paying off its loan to support other local cooperative economic development projects and by providing strong wages for all employees as it gains resources.
Woodhill Community Co-Op Conference 2023
On August 12, 2023, the Woodhill Community Co-Op, alongside Cleveland Owns, People's Budget, and others, hosted the “first co-op conference in Cleveland,” according to community organizer Jonathan Welle. Representatives from groups including the Legal Aid Society of Cleveland, Rust Belt Riders, the Sudanese Workers Alliance for the Restoration of Trade Unions, Cleveland Solar Cooperative, Little Africa Food Collaborative, Evergreen Cooperatives, Cooperation Jackson, among many others, came to provide mutual education and interactive trainings on the ideals, experiences, legal frameworks, and democratic management of cooperatives in Ohio and the United States.
Among these were discussions on the path to forming a cooperative as a legal entity, the real-world development of cooperatives in the state, the growth of movements to expand democracy in both politics and economics, the practical construction of democratic management structures, and the community benefits provided by the strong cooperative movement in Jackson, Mississippi in the absence of government support for public infrastructure and social programs. Informal conversations about employee ownership projects in Argentina, Mexico, Syria, Italy, Finland, and Spain introduced participants to employee ownership models working to bring more participatory democracy to their societies and ground wealth in the communities which produce it.
Ohio Employee Ownership Center
The Ohio Employee Ownership Center (OEOC) began in 1987 as a program within Kent State University publishing research on employee ownership and providing support and training to employee-owned firms and businesses and unions forming transition plans. The organization unites the employee-owned network in Ohio, connecting ESOPs, worker cooperatives, and transitioning businesses with important resources for financing, legal aid, joint planning and coordination, ownership education, and succession planning. The center has assisted with a wide range of employee ownership projects, including enabling the conversion of businesses to employee ownership, setting up the Cooperative Development Center at Kent State, and coordinating the Employee-Owned Network in Ohio, among others. Pattycake Bakery described the OEOC as indispensable to their success in transitioning to a co-op.
The OEOC has a broad vision of employee ownership which includes ESOPs and worker cooperatives, as well as other schemes such as employee-owned trusts. This idea ensures that the OEOC can be more flexible in consultations with businesses in transition because while many business owners may be interested in transferring their business to employee ownership, some are not comfortable or familiar enough with democratic management to transition to a worker cooperative. In this circumstance, workers can still win great financial benefits in an ESOP while the business's legacy is preserved with considerations of the interests of the employees who operate the business. The OEOC is able to accommodate the resource needs of both worker cooperatives and ESOPs with its wide range of expertise on employee ownership.
Policy Recommendations
Legislation at the national, state, and local levels helps to support employee ownership. In 2018, the bipartisan Main Street Employee Ownership Act passed to provide financial aid to qualified worker cooperatives and ESOPs via the Small Business Administration. The 2023 WORK Act created a $50 million program within the Department of Labor to support new and existing state-level employee ownership programs with education, outreach, research, and logistical support for both worker cooperatives and ESOPs. States such as Iowa, Nebraska, Massachusetts, Vermont, North Carolina, Pennsylvania, and Colorado, as well as cities such as Berkeley, California and New York City, have passed legislation to support worker cooperatives and ESOPs with subsidies, loans, public partnerships, educational programs, legal support, and fair regulations.
Ohio has previously funded programs to subsidize employee-owned firms and the Ohio Employee Ownership Center. Policymakers should do more:
Education and awareness: Many who may otherwise support the expansion of employee ownership may be unaware of its benefits. Incorporating cooperative management education into business and economics studies at public institutions and funding similar programs in private institutions can contribute to building a strong and empowered workforce and a new generation of entrepreneurs and business leaders well-versed in employee ownership models.
Start-up or transition funding: Securing initial capital is a challenge for the formation and development of employee-owned businesses, mainly because employee ownership largely precludes external investors taking an ownership stake in the company’s profitability. Many employee-owned firms temper this by issuing non-voting shares to individuals who are not employed by the company. ESOPs tend to be more familiar to conventional financial institutions and investors than worker owned co-ops, and thus have a wider range of financing options. But, according to OEOC researcher Michael Palmieri in an interview, our current tax laws and available subsidies may mean this model is only feasible for larger firms. Expanding public resources for employee-owned startups and transitions can help worker-owners to establish the infrastructure for permanent and stable economic power in their communities.
Small Business Credit Initiative: One solution is to direct funding from the federal State Small Business Credit Initiative (SSBCI) toward employee-owned firms. These resources can help fund outreach initiatives to educate small business owners about employee ownership transitions, increasing awareness and understanding of these models and providing tools and connections for employee-owned firms and transitions. In Ohio, the state government previously achieved this by partnering with the Ohio Employee Ownership Center. Funding for similar organizations, such as Cleveland Owns, can serve a similar purpose and extend opportunities beyond ESOPs to worker-owned cooperatives.
Right of first refusal: To further encourage employee buyouts, the government could offer aid and financial support to workers for this end and grant employees the “right of first refusal” in the case of business sales. Similar international policies, such as the Marcora Law in Italy, provide aid to employees choosing to purchase closing businesses and convert them to worker cooperatives, providing an opportunity for failing firms to recover and maintain jobs.
Public-"private" partnerships: State and municipal governments entering public-private partnerships can prioritize employee-owned firms over privately-owned firms, similar to awarding points to firms meeting other job quality benchmarks, such as neutrality when workers form labor unions.
By addressing the challenges that worker cooperatives and ESOPs face with supportive policy solutions, Ohio policymakers can promote employee ownership as a viable business model to contribute to economic growth, stability, and equity in Ohio.
Thank you to Molly Shea, worker-owner at Pattycake Bakery; Jonathan Welle, Executive Director at Cleveland Owns; and Michael Palmieri, researcher at the Ohio Employee Ownership Center at Kent State University, for informing this article with direct interviews. Data on the Midwest's cooperative sector are sourced from the 2017 Individual Worker Co-op Census Survey.