This story was updated with new data January 21, 2019.
Stocks from Employee-Owned Companies Outperform S&P
Brokerage Platform Created by NCEO Allows Investors to Focus on Businesses with Shared Ownership and Inclusive Workplace Cultures
What do Southwest Airlines, Alphabet, and Etsy have in common? All are companies that have some degree of employee shared ownership and high-engagement workplace cultures. These are qualities that the National Center for Employee Ownership (NCEO) uses to determine if businesses are included in an index hosted on a brokerage platform that directs socially conscious investors to employee-owned firms.
The platform, Motif, hosts the NCEO “Employee Ownership Index” which consists of 30 companies that meet two key criteria:
- Broad-based equity compensation programs — i.e., ESOPs with an average account balance of $30,000 or more and/or stock option/restricted stock grants for a majority of full-time employees and
- Employee engagement work practices, as measured by appearing on the Fortune’s Best Companies to Work For list, the Gallup Engagement Index, or the Enterprise Engagement Alliance Awards.
Investors can use the Motif platform to invest in this basket of stocks. Since the launch of the index, the Employee Ownership Index has consistently out-performed traditionally run and owned companies. In its first year, the index had a 30.3 percent return as compared to the S&P’s 15.5 percent return. As of mid-January 2019, the relative return is 28 percent to 12 percent.
This is consistent with numerous studies, which have shown that companies with some degree of broad-based employee ownership tend to perform better than comparable firms, with higher workplace satisfaction, productivity and morale, lower turnover, and somewhat higher profits.
Companies with some degree of broad-based employee ownership tend to perform better than comparable firms, with higher workplace satisfaction, productivity and morale, lower turnover, and somewhat higher profits.
Forbes covered the index’s launch in June 2017, talking with NCEO Founder Cory Rosen about its origins:
“The NCEO initially invested in a dozen or so stocks of companies that I knew had broad-based employee ownership plans as well as high employee involvement in day-to-day work decisions,” says Rosen. “And then we would buy, and sell, and add to the mix over the years. And the result was that we significantly outperformed the stock market, which helped dramatically grow our reserve fund. Of course, we can never be sure if this was just good luck, but there was a theory and data behind it.”
As people learned about the NCEO’s successful strategy, they became interested in the concept, and wanted to turn it into a mutual fund. But mutual funds, Rosen told Forbes, are “complicated and expensive” to create. When Rosen learned about Motif, which allows for the creation of theme-based portfolios of up to 30 stocks, he saw it as the opportunity he was looking for.
Rosen notes that NCEO does not give investment advice. He sees the index as a great way to collect new data on the performance of employee-owned firms. The index is available to individual investors through the Motif website. It’s easy to create an account, and the threshold for investment is just $250. Motif plans to make its offerings available in 401(k) plans in the future.