The Surprising Ownership Model Beating the S&P 500

Added: 2026-05-30

[00:00:04]Hello and welcome to another edition of Wealth  Management Insights. I'm Emily Thomas, Head of Investing with Impact here at Morgan Stanley  Wealth Management. Today is Monday, May 18th, and I'm recording this from our broadcast  studios in Purchase, New York. Nearly half of privately held businesses in the US are owned by  someone aged 55 or older. That represents nearly $2.9 million businesses, more than 10 trillion  dollar in assets expected to change hands in the coming years. Employee ownership is gaining  traction as a business succession strategy, helping preserve company success while supporting  positive long-term outcomes. At its core, employee ownership gives workers a financial stake in the  companies they help build. This can take several forms including employee stock ownership plans or  ESOPs, worker cooperatives, and employee ownership trusts. Each structure aims to expand access  to ownership and wealth creation. In the US, ESOPs are the most widely used structure, so  much of today's discussion focuses on them. For founders, this provides a pathway to liquidity  while maintaining a company culture, legacy, and independence. For investors, it highlights  how ownership models can influence company performance, resilience, and value creation across  the economy. Wealth in the US remains highly concentrated. The top 10% of households hold about  60% of total wealth, while the bottom half of Americans hold just 6%. Employee ownership links  the retirement wave with the potential to expand access to wealth creation. Starting with access,  employee ownership can improve financial outcomes for employees. Employees participating in ESOPSs  tend to accumulate significantly more retirement savings than their peers, often nearly double. The  impact is even more pronounced for lower income employee owners. Rutgers University found that in  2019, low income employee owners had a median ESOP balance of approximately $165,000, nearly 10 times  the national median savings. Employee ownership extends this wealth building potential to the  broader workforce and can help drive company performance. When employees have financial  stake in their business, engagement rises, productivity improves, and turnover declines.  Research has shown that ESOP owned companies experience stronger sales and employment growth  with productivity gains of roughly 5% within the first year of adoption. We're also seeing evidence  of employee ownership driving financial returns.

[00:03:00]Recent analysis of the Stout ESOP index found  that employee-owned companies delivered average annual share price growth of over 17% from 2021  to 2024 outperforming both the S&P 500 and the Russell 2000. These companies have exhibited  lower volatility suggesting a more stable performance profile over time. That brings us  to the opportunity for investors and founders alike. Despite the benefits of employee ownership,  fewer than 10% of private sector workers currently participate in employee ownership programs.  As millions of businesses approach ownership transition, employee ownership is coming further  into focus. Employee ownership transactions typically involve specialized financing structures  during ownership transitions. This can include private credit and private equity to support ESOP  conversions and direct investment in employee owned companies. For founders, this underscores  the importance of planning ahead and understanding how exit options align with financial goals and  legacy priorities. For investors, it highlights a growing opportunity set across private markets  with the potential for both financial returns and positive economic impact. Policy support could  further accelerate opportunities. Long-standing tax incentives already support employee ownership,  and bipartisan momentum could expand access to capital and resources. The bottom line, ownership  and how it transitions is becoming an increasingly important lens for understanding long-term value  creation. Employee ownership connects business succession, wealth creation, and private  markets. For investors and founders alike, this means looking beyond how value is  generated to how it's shared and sustained over time. Thanks for listening. If you would  like more information or have any questions about employee ownership, please reach out  to your Morgan Stanley financial advisor.