NJ Needs More Employee-Owned Companies, Lags Behind Other States

NEW JERSEY — A powerful weapon that could chop away at New Jersey’s ugly wealth gap is going unused – but there’s a plan on the table to put it into action, state officials announced Thursday.

The gap between the rich, poor and middle class in New Jersey has been among the worst in the nation over the past few years, multiple studies say. Under the U.S. Census Bureau’s measurement of income inequality, which the federal agency calls its “Gini coefficient,” New Jersey tied for the eighth-worst state in 2022 (only New York, Connecticut, Massachusetts, California, Louisiana, Florida and Alabama ranked worse).

Experts say this gap gets even worse when broken down by race, with startling disparities in income, home ownership and health insurance plaguing the Garden State. See Related: Race, Wealth And Homeownership: New Jersey Still Seeing Troubling Gaps

One possible solution to the problem? Giving New Jersey workers a bigger financial stake in the companies they work at through Employee Stock Ownership Plans (ESOPs).

At businesses with an ESOP, employees retain interest in shares of a company through holding corporate stock in a trust, providing a succession plan for business owners – while also building wealth for workers.

The model can be especially useful when a longtime owner of a beloved local business decides to retire – often without realizing they can keep the business open instead of shutting it down.

Despite the success of ESOPs nationwide, to date, the Garden State continues to report one of the lowest rates of employee-owned companies in the United States, according to the New Jersey Economic Development Authority (NJEDA).

For the companies that do, the model is working, state officials noted. Currently, New Jersey is home to 88 ESOPs, holding $64.9 billion in plan assets covering 423,429 current employees and retirees, with an average stock account for eligible current employees of $188,868.

The plan now? Boost participation across New Jersey, the NJEDA said.

When Gov. Phil Murphy greenlighted the state’s Wealth Disparity Task Force in 2021, it was tasked with finding remedies to the longstanding gaps that are impacting minority families across the state.

The 2024 state budget carved out $6 million for the NJEDA to run programs based on the task force’s work. About $2 million of that funding will pay for a new initiative: a partnership with the Rutgers University School of Management and Labor Relations.

Through the new partnership, Rutgers will develop a tool to help New Jersey businesses determine if transitioning to an ESOP may be a viable option for succession planning. Rutgers will also carry out a public relations blitz about the benefits that ESOPs can offer New Jersey’s millions of workers.

“The ESOP model has been deployed successfully by thousands of companies nationally and presents a fantastic alternative for New Jersey businesses looking to solidify their succession plans and offer a family-sustaining benefit to their employees,” said Murphy, a former Goldman Sachs executive.

“ESOPs offer a powerful mechanism for creating a stable transition plan for companies, while also helping employee owners accumulate wealth to pass on to future generations, particularly within communities of color,” agreed Tim Sullivan, CEO of the NJEDA.

• See Related: Is NJ Ready For A 32 Hour Workweek? It Could Happen – Here’s How
• See Related: NJ Raises Minimum Wage To $15 – But It Still Isn't Enough To Live On
• See Related: NJ Sees Huge Spike In Number Of Workers Postponing Retirement, Study Says

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