When Huey Long was senator from Louisiana in the mid-1930s, he whipped the country into a lather of fear and greed by proposing to confiscate the inheritances of the rich and parcel them out as a grubstake and a guaranteed annual income for every man, woman, and child in America. That is one way for a government to redistribute wealth. In the mid-70s, Huey's son and heir, Sen. Russell Long, saw another way. This was to redistribute not wealth itself, but the opportunity to make it. His tool is the employee stock ownership plan (ESOP). Since 1974, Long, now the ranking Democrat on the Senate Finance Committee, has contributed about a dozen pieces of tax legislation that make it increasingly attractive for businesses to set up shareholding trust funds for employees. There are now some 7,000 businesses with ESOPs, affecting the wealth of perhaps 8% of the work force, and the pace of new ESOP formation is picking up.
What sort of companies go for ESOPs? Money-makers, according to Corey Rosen, of the National Center for Employee Ownership: 98% of the 7,000 ESOPs involve profitable businesses. Many (one-third to one-half) were set in place by the owners of the business when they decided to cash in their equity chips and prepare for retirement. The reasons they chose ESOPs -- apart from the fact that there many not have been any other buyer in the offing -- are obvious. The ESOPs offered them a chance to sell out to people they knew (their employees), at a fair market price and with handsome tax breaks. Variations of the plan may also play a major role in leveraged buyouts, employee benefit plans, corporate divestitures, and negotiations on gaining wage concessions. "ESOPs," says a Philadelphia business valuation expert, "are where the future is coming from."