What Institutional Investors Can Learn from Employee Ownership Conferences

By Delilah Rothenberg, Co-Founder & Executive Director, Predistribution Initiative

Last week I attended the annual conference of the National Center on Employee Ownership (NCEO) in Milwaukee, with over 2,300 attendees this year. I went as someone who has spent two decades in finance, from Wall Street to private equity to running a nonprofit that works with institutional investors on predistributive economic reform. There were very few others from the institutional investment community there, but there was so much to learn.

Employee ownership is of growing interest to investors both due to strong financial performance characteristics, as well as newly emerging pathways to invest in these businesses through private equity and private credit structures. For investors increasingly concerned about systemic risks relating to economic inequality, these structures also offer promise. After attending several employee ownership conferences over the past few years, I’m solidly convinced that events like these are critical educational components of understanding employee ownership for anyone committing capital to the space.

There are various forms of employee ownership. Most of the sessions I attended focused on Employee Stock Ownership Plans — or ESOPs — which are tax-advantaged retirement benefit structures that give workers a beneficial interest in the company they work for. There are roughly 6,500 ESOPs in the U.S. today, covering over 15 million participants (11million active) and holding more than $2 trillion in assets. ESOP participants have on average more than double the retirement savings of comparable non-ESOP workers.

This is not a niche movement. The conference drew CEOs, CFOs, board members, HR leaders, and employee-owners from hundreds of companies across manufacturing, healthcare, construction, technology, and professional services. The interest is bipartisan: in 2025, Congress saw the unanimous advancement of two major ESOP bills by the Senate HELP Committee and the introduction of both the American Ownership and Resilience Act (a finance related bill) and the Promotion and Expansion of Private Employee Ownership Act (a regulatory refinement bill) with strong support from both parties. Employee ownership resonates with workers in rural and urban areas alike, and from economic nationalists to labor progressives to fiscal conservatives.

JUST Capital polling indicates that paying workers fairly is amongst the highest of priorities for Americans. And the organization, Expanding ESOPs, highlights that while few Americans may have heard of employee ownership, once they understand it, they are overwhelmingly in favor.

A polling of Americans across party lines and demographics

Source: Expanding ESOPs

At PDI, we are enthusiastic about employee ownership. But we also recognize that like any financial structure, the devil is in the details. An ESOP can be a vehicle that serves companies, founders, investors, and workers extraordinarily well — or it can be one that disadvantages the very employees it is supposed to benefit. Many of the differences come down to governance, valuation discipline, and structural design — themes that should sound familiar to any institutional investor. As institutional investors become more interested in employee ownership opportunities, it will be important for them to understand many of these nuances.

Source: https://www.esop.org/articles/employee-stock-ownership-plan-esop-basics.php

Governance, Compensation, and Culture

One of the most substantive threads at the conference concerned corporate governance. The parallels to public companies were impossible to miss. In a leveraged ESOP, the trustee acts as fiduciary for employee-beneficiaries while the board oversees hiring, firing, and evaluating the CEO or other executive officers, executive compensation, strategy, financial oversight and repurchase obligations, as well as offers to buy the company.

In establishing the corporate governance structure in ESOP firms, there is a circular dynamic where the existing board will appoint the ESOP trustee, and then the ESOP trustee will appoint / approve the board. Because the introduction of an ESOP is typically or most often a discretionary decision on the part of the seller and not an affirmative initiative by the employees to purchase any given company, employees may not even know the company is being sold to a trust in their interest until after the transaction is completed. This leaves several questions around circular accountability between the board and trustee and whether a certain level of engagement with employees in establishing the structure and governing the result might be more or less optimal.

One of the books I picked up as part of my conference experience

Service providers at the conference emphasized the value of having at least some board members (for instance ~1/3) be independent and external to help avoid conflicts of interest and bring in oversight with deep training and experience in corporate governance. The value of independent directors is clear. What struck me, though, was how many ESOP companies in the room have decided to include workers on their boards — a practice that is still quite rare in public company governance despite growing investor interest. Employee owners can help ensure the board stays grounded in the context of the company, avoiding a disconnect with those who oversee strategy and those on the ground. On the other hand, there are real considerations as to how to ensure this type of employee engagement works in practice, including nomination and selection procedures, the institutionalization of proper training, the maintenance of standards of expertise of Board members, as well as measures to avoid conflicts of interest. At the Predistribution Initiative (PDI), we are studying the governance outcomes of these mixed boards and developing supportive infrastructure which could enhance the effectiveness of this practice. We anticipate this can yield valuable lessons and results for institutional investors.

Executive compensation also warrants careful attention. In ESOP transactions, selling shareholders may receive warrants, while executives and board directors may receive Stock Appreciation Rights (SARs). These instruments need to be designed alongside — not at the expense of — the ESOP stake which, most often in conjunction with diversified 401(k) plans which constitute the retirement holdings of rank-and-file workers. Getting this balance right including paying attention to overall pay ratios regardless of compensation structure (cash vs equity) is a familiar challenge for investors who have begun to focus on pay equity at public companies.

Equally important is the cultural infrastructure of ownership. Multiple sessions emphasized that an ownership stake on paper means little if employees don’t understand it or feel its effects in their daily experience. The most successful ESOP companies invest in ownership education, transparent communication about valuations and distributions, and participatory management that gives employees a genuine voice. Culture is not a soft add-on — it is what makes the financial structure work.

Valuation, Market Conditions, and Externalities

Snapshots from the 2026 NCEO conference

It is perhaps not surprising that employee ownership has grown alongside rising equity values. ESOP valuations are grounded in company budgets and multiples on comparable transactions. The final transaction pricing (and all other terms) are reached through an arm’s length negotiation between sellers and a Trustee who is advised by a third party valuation expert, and the transaction must meet the regulatory standard of paying “no more than fair market value for a financial buyer.” Rising markets have lifted these valuations — and with them, employee retirement balances. But going into a potential downturn, caution is prudent. Conference sessions underscored the importance of realistic budgeting rather than overly optimistic projections, consideration of future real investment needs and repurchase obligations of the company, and mechanisms like earn-out clawbacks for post-transaction valuation adjustments.

I found myself reflecting significantly on the idea that employee ownership should not exist in isolation from fundamental labor protections. In a downturn, it becomes even more important that ESOP companies ensure living wages (when they can afford it), respect freedom of association and collective bargaining, and maintain robust grievance mechanisms. Employees should not incur economic opportunity costs in order to participate in a plan, thereby resulting in downside protection. An ownership stake is meaningful only if the underlying employment relationship is fair.

It is also worth noting that employee ownership is not a silver bullet for reducing externalities. Some conference participants discussed how employee-owned companies identified pricing power opportunities during the pandemic and recent tariff environment — good for the company and its employee-owners, but a reminder that ownership alignment between a firm and its workforce does not automatically extend to other stakeholders like consumers. This is a nuance institutional investors should keep in mind.

Why This Matters for Institutional Investors

Most investors encounter employee ownership only in the context of private equity-backed management equity plans. ESOP transactions are structured quite differently — involving some combination of seller financing, bank loans, private credit, and/or SBA-backed lending rather than traditional PE fund economics. Understanding how these deals work, who bears what risk, and where governance authority sits is precisely the kind of knowledge gap that conferences like NCEO and those organized by the ESOP Association (and its sister organization, the Employee Ownership Foundation) and the Employee Owned S Corporations of America (ESCA) can help bridge for investors.

At PDI, we believe institutional investors are well-positioned to contribute — not only as passive observers, but also as participants who bring decades of experience in governance, valuation, and fiduciary oversight to a community actively seeking to strengthen these dimensions. And the employee ownership community has much to teach the investment world about what it looks like to align and perhaps most importantly to include the interests of workers and capital at the firm level.

Last year’s Employee Ownership Ideas Forum, co-hosted by the Rutgers Institute of Employee Ownership and Profit Sharing and the Aspen Institute’s Economic Opportunities Program, and the 2024 Rutgers-Oxford Employee Ownership Research Conference

We are continuing to deepen our engagement in this space. Fortunately, there is a broad and welcoming community of both academic and practitioner entities who can help. In addition to large annual meetings some of the more focused gatherings these groups host include the annual Rutgers-Aspen Institute Employee Ownership Ideas Forum (June 2-3 this year), the annual Rutgers Silicon Valley Future of Equity Forum (June 29-30 this year), the annual Employee Ownership Foundation Oxford Symposium (August 4-6 this year), and the Rutgers-Oxford Employee Ownership Research Conference (August 27-28 this year).

We are curating investor peer learning delegations to attend these events and will report our reflections following each program. If you are an institutional investor interested in exploring employee ownership and its intersection with predistributive finance, we’d love to have you join us.

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The Predistribution Initiative is a nonpartisan nonprofit working with institutional investors to integrate predistributive practices into financial and economic reform. Learn more at predistributioninitiative.org. We would like to thank Michael Golden and Chris Mackin of Ownership Associates for their feedback on this blog. Their review does not imply an endorsement of any of the views expressed in this piece.