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Employee-Owned Cooperatives

An employee-owned cooperative is a membership organization set up to market the labor and skills of its members through owning a business. It is owned by the members, who in this case are the employees. Each member has one voting share which is used to elect the board of directors on a one-person, one vote basis. Its profits are allocated among the members on the basis of how much labor they put into the co-op. In employee-owned coops, like all cooperatives, financial ownership is separated from share ownership. Additionally, each member has an internal account which holds his/her financial interest in the co-op.

Employee-owned cooperatives are part of a broad family of cooperative businesses, which include agricultural coops like Land of Lakes or Welch’s, owned by their farmer members; credit cooperatives like credit unions, which are owned by their depositor members; mutual insurance companies like Nationwide and State Farm, which are owned by their policy holder members; and consumer co-ops like some natural food stores, which are owned by their customer members.

Some Facts about Employee-Owned Cooperatives

  • Total: According to the Democracy at Work Institute, a research arm of the United States Federation of Worker Cooperatives there are an estimated 450 employee-owned cooperatives in the United States employing approximately 7,000 people.  Studies focusing on the international level estimate that there are 85,000 employee-owned cooperatives around the world employing 1.2 million people.
  • Industries: They operate in nearly every sector but are concentrated in retail trade; professional, scientific and technical services; manufacturing; and waste management and remediation
  • Size: In the United States the average size of an employee-owned cooperative is 9 members, however employee-owned cooperatives can become quite large. In New York City, Cooperative Home Care Associates employees over 2,000 people. Internationally, Mondragon, the largest employee-owned cooperative in the world located in Northern Spain, employs over 80,000 people.
  • Uses: Employee-owned cooperatives can be used as a succession plan for selling owners to pass their companies to their employees; they can be used as a way to generate employment where labor markets fail to provide decent jobs; they can be used as a community development strategy to generate decent jobs for local residents while insuring that the wealth generated remains within the community. Of course, all three of these goals can be achieved simultaneously

Common Question About Employee-Owned Cooperatives

For a deeper dive into how employee-owned cooperatives are structured internally, the purpose of bi-laws, tax implications, and examples of how allocations are made to internal accounts see our overview What Is an Employee Owned Cooperative? Co-op Basics for Employee Members. Other resources pertaining to the internal structure of employee-owned cooperatives include:

Q: How does the governance of a employee-owned cooperative work?

Every cooperative will have a different governance structure that reflects the goal of the business and its members. However, one  distinguishing feature of employee-owned cooperatives is that members elect the board of directors on a one-person, one-vote basis, and the board hires the management. The basic procedures for the co-op are laid down in the company’s articles of incorporation and bylaws.  There’s an annual membership meeting for all co-op members, and regular and special meetings may be called.

Q: How do I become a member in an employee-owned cooperative?

A: Usually employees will work for a period before becoming eligible to become voting members and owners. Members pay a membership fee, which may be smaller or larger depending on the capitalization needs of the cooperative and go through some kind of training process. In return for the payment of the membership fee and completion of training, the member receives a voting share. Future employees will also have the opportunity to become members and owners after a probationary period.

Q: What financial benefits are there to being a member of an employee-owned cooperative?

Your financial stake in the worker cooperative is through your member account. Initially this account's value will be the cost of the membership fee. In profitable years the cooperative will divide profits between a "reserve account" for the company to absorb possible losses, member accounts, and cash payouts to members. The amount placed in each account depends on the needs of the cooperative, newer cooperatives often build up the reserve account before allocating profits to member accounts. The allocations to member accounts and amount of cash payout are based on a formula that takes into account the amount of "patronage" or labor contributed to the cooperative. Overtime members individual accounts build value which can be distributed on a revolving basis or when they retire.

Q: Are cooperative less efficient or productive than conventional businesses?

No, studies comparing employee-owned cooperatives to firms of similar size in similar industries find that employee-owned cooperatives are as, if not more, productive and efficient than conventional businesses.

Employee Owned Cooperatives and Community Wealth

Employee ownership is an excellent tool to generate jobs, anchor capital within neighborhoods, promote asset accumulation and build viable economic enterprises. Over the past decade local and state governments, have supported initiatives to develop more employee-owned cooperatives. A critical tactic is the creation of new employee owned businesses, largely structured on the co-op model, whose products and services would match the procurement needs of large nearby institutions. In addition, the Evergreen Cooperative Development Fund will provide long term funding resources.The OEOC was part of one such initiative based on these insights, The Evergreen Cooperative Development Project, in Cleveland, Ohio.

The Evergreen Cooperative Development Project:

The Evergreen Cooperative initiative began in 2008, based on a partnership among the OEOC, the Democracy Collaborative at the University of Maryland, the city of Cleveland, The Cleveland Foundation, and Enterprise Cleveland.

The initiative was designed to build up the local economy of Cleveland by generating wealth for low-income residents and stabilizing neighborhoods. The project emerged as we began to explore how we could anchor and create businesses that employ residents, and build wealth in the surrounding area.

The first two businesses–the Evergreen Cooperative Laundry (ECL) and Evergreen Energy Solutions (EES)–both launched in October of 2009. In late 2011, ground was broke for the next Evergreen Cooperative–the Green City Growers Cooperative.

  • Evergreen Cooperative Laundry is housed in a LEED building and has the smallest carbon footprint of any industrial-scale laundry in northeast Ohio.
  • Evergreen Energy Solutions is a green weatherization company.
  • Green City Growers will be centered at a 3.8 acre hydroponic greenhouse that grows lettuce, leafy green vegetables, and herbs.

Recently the Evergreen Cooperatives launched a multi-million dollar Fund for Employee Ownership which aims to acquire small businesses, convert them to worker owned enterprises and support them during and after their transition.

The Evergreen Cooperative Initiative is gaining support including investments from the Federal government and major institutions in Cleveland. Worker Cooperatives have also been the focus of local economic development strategies in major cities throughout the US some aiming to  replicate the “Cleveland model” while others are taking different approaches. Below you can find out more about some of these initiatives.

Additional Information

Reports and Presentations on Worker Cooperative Development

Organizations Supporting Worker Cooperative Development

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