ESOPs - it all started with Kelso

Labor is the source of subsistence, capital is the source of affluence. My idea is to make everyone a capitalist, and therefore, financially secure.

Louis O. Kelso

Louis O. Kelso developed the theory of "binary economics" that labor and capital are the two and only two potential sources of personal wealth.  Most of us use our labor income (the money we earn from our day job) to house, feed, provide transportation, and educate our children.  Often there is not enough labor income left over to invest in capital.    This is supported by Stolzfuz (2016), where high earners participated more often and at a higher contribution rate (63% of management, professional and related workers) in 401K type plans than low earners (19% of service workers).  Kelso's idea was to allow the employees to purchase capital (company shares) but rather than purchase the shares with labor income, to purchase the shares with future profits of the firm (capital income).  In this way a second income stream would be available to the employee owners, at no cost to the employee - and this became the concept of the modern day leveraged ESOP.

Stolzfus, E. R. (2016). Defined contribution retirement plans: Who has them and what do they cost? Beyond the Numbers, vol. 5, no. 17.  Retrieved from https://www.bls.gov/opub/btn/volume-5/defined-contribution-retirement-pl...


 

Do ESOPs generate wealth? 

YES! Recent research performed by NCEO and funded by the Kellogg Foundation identified that:

Among survey respondents age 28 to 34:

  • Median household net worth is 92% higher for employee owners
  • Employee owners have 33% higher median income from wages
  • Median job tenure is 53% higher for employee owners
  • Employee owners are 2.6 times more likely to receive tuition benefits from their employers.

The full report on this research is available at Ownership Economy for your review


 Resources

The following books are available for download from  the Kelso institute.

The following book is available for purchase from Amazon:

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