New Study Provides More Evidence on the Positive Effects of ESOP Firms

A rigorous new study conducted by Dr. James Hasik on behalf of the Employee-Owned Contractors Roundtable provides more evidence of the particular, positive impact of ESOP firms on company performance and resiliency.

The 2022 National Defense Authorization Act incentivized contracting by the US Defense Department with wholly employee-owned firms through a mechanism to facilitate non-competitive follow-on awards from satisfied federal customers. A strong body of research on ESOPs in other settings shows a range of positive impacts of ESOPs on companies and employees.

For example, in a 2023 study we found S corporation ESOPs reported voluntary quit rates of their employees at roughly one-third of the national average. A 2020 study conducted by the Rutgers School of Management and Labor Relations and the Employee Ownership Foundation found that ESOP companies were 3 to 4 times more likely to retain staff throughout the COVID-19 pandemic. These findings and others on our employee ownership and the economy page quantify what we know about ESOP companies in practice: they have more of a focus on the long-term than conventional businesses do.

The study used Contractor Performance Assessment Rating System (CPARS) data to compare the scores of 100% ESOP federal contractors to non-ESOP federal contractors. The CPARS is a database of the contracting officials' assessments of the performance of their contractors, by individual contract, from 2003 through the present.

The author conducted statistical analysis and found that firms entirely owned by ESOPs achieve significantly higher ratings from federal officials than all other firms. In particular, they more frequently achieve ratings in CPARS of Excellent or Very Good than other firms. For instance, 79.1% of 100% ESOPs received a rating of exceptional or very good on “Quality” versus 57.2% among other firms.

To look at resiliency, the author conducted statistical analysis of survival rates of 226 100% ESOP firms compared to the 99 largest federal contractors. For the ESOPs, he drew upon a database we created of ESOPs in the government contractor space that we linked to federal contracts data. Between 2017 and 2021, nine of the 99 largest federal contractors, and six of the 226 100% ESOP federal contractors, disappeared as independent entities, a significantly lower exit rate for the ESOPs than predicted by a statistical test comparing the two groups.