The New Jersey Economic Development Authority (NJEDA) Board has approved an agreement with the Rutgers University School of Management and Labor Relations (SMLR) to create educational and informational programming aimed at increasing the number of New Jersey businesses utilizing Employee Stock Ownership Plans (ESOPs). An ESOP is a model where employees retain interest in company shares through holding corporate stock in a trust, providing a succession plan for business owners while building wealth for workers.
In 2021, Governor Phil Murphy issued Executive Order 262, establishing the Wealth Disparity Task Force to examine and address wealth disparities affecting Black and Hispanic or Latino New Jerseyans. As part of the State Fiscal Year 2024 Appropriations Act, $6 million was allocated to NJEDA for Wealth Disparity Initiatives based on the task force's work. This memorandum of understanding (MOU) will be funded through part of that allocation.
“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 Governor Murphy. “The team at Rutgers has amassed significant expertise on the deployment of ESOPs, and will be a crucial partner in raising awareness of this tremendous financial opportunity for New Jerseyans.”
Despite nationwide success, New Jersey reports one of the lowest rates of employee-owned companies across the United States. 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 amounting to $188,868.
“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,” said NJEDA CEO Tim Sullivan. “Under Governor Phil Murphy’s leadership, the Wealth Disparity Task Force identified an opportunity to mitigate barriers for entry into ESOPs.”
Funded at $2 million, the MOU between NJEDA and Rutgers SMLR will support creating a technical assistance program where Rutgers SMLR will develop tools to help interested businesses determine if transitioning to an ESOP may be viable. Additionally, Rutgers will lead outreach initiatives designed to increase awareness among employees and business owners about becoming an ESOP.
“A large percentage of retiring business owners have few succession plan options and don’t realize they can sell the company to their employees instead of closing up shop,” said Professor Bill Castellano, Executive Director of the New Jersey/New York Center for Employee Ownership. “Employee ownership strategies save jobs and help keep local economies going.”
In April 2024, NJEDA issued a Request for Information (RFI) seeking insights on developing a statewide employee ownership program. The RFI revealed that transitioning to employee ownership involves technical and financial challenges due to complex legal requirements. Despite these hurdles, many employee-owned companies continue thriving.
“The Wealth Disparity Task Force’s recommendation of ESOPs as means to support businesses and help people of color build generational wealth is groundbreaking,” said NJEDA Chief Diversity Officer Michelle Bodden. “The collaboration between NJEDA and Rutgers SMLR aims to educate families struggling with long-term financial goals.”
“Studies show that employee ownership models support wealth building and retirement opportunities for workers,” said Jayné Johnson, Director at NJ Office of Equity. “This initiative will advance existing work in our state expanding opportunities for asset-limited workers.”
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