2007 ESOP Statistics, Estimating Techniques, 1993 Peak, and Aggressive Acquirers

The Statistical Profile of Employee Ownership was updated in February 2008. Here are some of the latest ESOP statistics:

• The number of "ESOPs, stock bonus plans, & profit sharing plans primarily invested in employer stock" increased to 9,774 in 2007 (from 9,650 in 2006)
  
• The number of participants of "ESOPs, stock bonus plans, & profit sharing plans primarily invested in employer stock" increased to 11.2 million in 2007 (from 10.5 million in 2006)
  
• The value of plan assets of "ESOPs, stock bonus plans, & profit sharing plans primarily invested in employer stock" increased to $928 billion (from $675 billion)
  
• 30% of the private company ESOPs owned 51-100% of the company stock, 30% owned 31-50%, 20% owned 11-30%, and 20% owned 0-10%
  
• 40% of majority-owned private ESOP companies pass through full voting rights, compared to 20% of all private ESOP companies
  
• The mean allocation to a private ESOP is 8-10% of compensation. The mean number of employees is 1,460, and the median is 125

Plans Considered and Statistics Used

The Profile provides an analysis of the plans considered and statistics used:

ESOPs (employee stock ownership plans) are stock bonus plans qualified to borrow money; otherwise, the two types of plans are very similar. Estimates for ESOPs in this category are based on data from the Department of Labor and the Internal Revenue Service. Because these data have many imperfections, we have used an estimating technique that we believe is fairly accurate. The estimates were revised in 2007, providing a somewhat lower number of plans than we had reported a few years ago, a somewhat higher number of participants, and a stronger year-to-year growth than previously thought. Details on this estimating technique are in the February 14, 2008, Employee Ownership Update. The data on 401(k) plans is based on surveys from the Employee Benefit Research Institute and the Investment Company Institute for 2006. The stock bonus plans and profit sharing plans included here are similar to nonleveraged ESOPs (they are primarily invested in employer stock and offer distributions in employer stock). Most companies with ESOPs are closely held.

The dramatic growth in plan assets in participants in the last few years appears to result from the better performance of ESOPs companies and a huge increase in the number of ESOPs doing acquisitions.

The estimating technique is important to understanding how the number of plans is calculated. Last December we discussed the DOL's Summary of the 2005 IRS Form 5500. You may have wondered about the difference between the number of ESOPs according to the DOL's Summary and the NCEO's Profile. I asked Corey Rosen, the executive director of the NCEO, about the difference:

"The 2006 data show about 8,700 ESOPs in the Form 5500 reports we have. You need to search for both ESOPs and separately for leveraged ESOPs. The 5500
data have some lag because smaller companies only file every three years, so,
for instance, in 2005, you would miss companies with ESOPs set up in 2005 or 2004 that have fewer than 100 participants (another four to five hundred probably, maybe a little more). On the other hand, some companies have more than one plan or their plan is inactive.

There are also plans that are functionally ESOPs (and even call themselves that) but are not technically (stock bonus or profit sharing plans invested primarily in employer stock). And there are many, many errors in both directions."

He provided a more thorough explanation in the February 14, 2008, Employee Ownership Update, which I will be blogging about later today.

Why the Number of ESOPs Peaked in 1993 and ESOPs as Aggressive Acquirers of Other Companies

The Profile also discusses the peak of 1993 and how ESOPs have become aggressive acquirers of other companies:

"1993 was one of two peak years for the number of ESOPs, ironically with the same number as 2005.

In the late 1980s, many public companies set up ESOPs. In 1992, accounting rules changed in a way that was less favorable for ESOPs, and public companies moved their contributions of stock from their ESOPs to 401(k) plans and began terminating their ESOPs. Formal plan designation changed, but not substance. Meanwhile, ESOPs in closely held companies were growing, both in numbers and size. ESOP companies tend to grow faster in terms of employment than comparable firms and, in recent years, have become aggressive acquirers of other companies. The numbers for 2007 in this table are for the end of the year and also apply as of early 2008."