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


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


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

The following book is available for purchase from Amazon:

Poverty Growth


Poverty and Population Growth:  As reported by the Sagamore Institute, every major Indiana city saw a percentage increase in the growth of poverty from 2000-2015, an overall increase in the impoverished population of 164,381 (Riggs et al., 2017).  Of the 11-major Indiana cities, the poverty by population ranged from a low of 3.1 percent in Fishers, to a high of 38.2 percent in Bloomington, a city by city ranking, and the percent change from 2000 to 2015 is provided in Table 1. As identified by Riggs et al. (2017) 7 of the 11 major cities experienced population growth, however the rise in poverty nearly exceeded the increase in population.  For example, from 2000 to 2015, Indianapolis had an increase in poverty from 11.8 to 21.3 percent or 85,063 individuals during this same time period the population grew by 89,063.  As of 2015 the impoverished population in Indianapolis was 175,623 individuals.  Conversely, Evansville had a poverty growth from 13.7 to 21 percent an increase of 8,259 individuals, but during the study period the city population decreased by 1,639.  This would imply that more of the residents became impoverished.  As of 2015, the total impoverished population in Evansville was 24,398.
Wage Growth: Wage growth of median household income as reported for the 11-major Indiana cities was only 3.47 percent.  However the cost of living during this period increased substantially above the wage growth, according to the American Institute for Economic Research (2018)  cost of living calculator it would take $137.79 dollars in 2015 to have the same purchasing power as $100 dollars in 2000.
References: American Institute for Economic Research. (2018). Cost of Living Calculator.   Retrieved from, T., Batson, C., Curry, K., Dewes, E., Heikens, N., Clark, K., & Nepomuceno, B. (2017). Public good index: A study of Indiana's major cities. Retrieved from 

 What are the potential cures for Poverty?

  • Education
  • Good Jobs
  • Secure Housing
  • Increasing Wealth


Poverty Growth by Indiana City

Poverty Table 1

A ranking of the 11-major Indiana cities by poverty by population based on 2015 data from the Sagamore Institute Report.

A Potential Solution

Potential Fix for Poverty

ESOP Research: Recent research by the National Center for Employee Ownership (Wiefek, 2017) funded by the W. K. Kellogg foundation evaluating employee ownership and economic well-being among employee-owners age 28 to 34 would seem to indicate that working for an employee-owned company does provide for increased wages and improve wealth generation outcomes.  This nationally representative survey data speaks to the issues being faced by states like Indiana. Wiefek (2017) identified the median wages from income were $40,000 for employee-owners as compared to $30,000 for non-employee-owners.  This overall pattern held when looking at median wages by industry.  As described by  Wiefek (2017, p. 11): Notably, the two groups of workers start out at the same modest wages. In other words, the differences between employee-owners and non-employee-owners are not entirely the result of employee-owned companies hiring workers who can demand a higher wage. Instead, the difference emerges as workers continue to work for employee-owned companies. The median household net worth (wealth) is positively impacted through employee-ownership as the overall net worth for employee owners is 92% higher than non-employee-owners ($28,500 vs. $14,831).  These data identify that at age 20 based on the respondent data there is not a large difference in median household wealth, however by age 25 the employee-owner had acquired a 32% increase in wealth, and by age 30 a 92% increase.
Impact of ESOPs on Poverty: Employee-ownership is not a panacea to remedy poverty growth, and wealth inequality in Indiana.  However, Wiefek’s research clearly identified that employee-ownership does have a positive impact on both wages and wealth generation (household net worth).  Therefore increasing employee-ownership would be expected to have a positive influence on Hoosiers.  Currently in Indiana, there are approximately 180 companies organized as an Employee Stock Ownership Plan with over 130,000 participants.  As reported by Project Equity (2018) members of the Boomer generation own 41,770 Indiana businesses that employee 532,800 Hoosiers.  What will happen to these Indiana businesses when their business owner retires? Some may be sold to a competitor or an investment group, some may be passed down to the next generation – but what a great opportunity to transition ownership to the employees via establishment of an Employee Stock Ownership Plan.  Have a question on employee ownership, please contact INCEO. 
Reference: Project Equity. (2018). Baby boomers own nearly half of privately-held businesses with employees in the United States.   Retrieved from Wiefek, N. (2017). Employee ownership & economic well-being: Household wealth, job stability, and employment quality among employee-owners age 28 to 35  Retrieved from 

Clearly the causes of poverty are complex and not limited to one or two factors.  ESOP's provide:

  • Education both Personal and Financial
  • Meaningful Employment
  • Acquistion of Capital Assets
  • Capital appreciation based on the employee-owner efforts

However, given the relatively flat wage growth that has not kept pace with the cost of living employee-ownership or increasing employee ownership could have a positive impact in reducing the growth of poverty in Indiana. Have a question on employee ownership, please contact INCEO.  

Address: 2760 Fortune Cir Dr E # 421983, Indianapolis, IN 46242-1983

Phone: (317) 561-1242


Contact the INCEO

For more information on employee ownership in Indiana please email us