A worker cooperative is a different form of employee benefit. Some say it’s better

Thinking of selling your business? Or starting a business? You may want to consider a worker cooperative.

This type of business structure is different from a consumer cooperative, where customers each own a piece of the organization in exchange for a membership. It’s also different from an employee stock ownership plan where ownership is assigned to employees based on other factors such as compensation, responsibility, and tenure, build up retirement value and give up day-to-day control to management.

A worker cooperative is a form of business organization where all workers equally own the business. There are no majority shareholders. Management is elected by the workers and reports to the workers. All profits are shared equally.

One example is Home Care Associates of Philadelphia, a worker-owned, women-led cooperative providing in-home personal care, mobility support, and household assistance to seniors and people with disabilities in the Philadelphia region. Employees can buy one share of the company for $500 via payroll after a probationary period.

“You have full rights at that point to run for a seat on the board, to participate in the worker-owner meetings and to vote,” said CEO Tatia Cooper. “If anyone decides not to be a worker-owner anymore, they get the full amount back that they invested.”

Pennsylvania is one of the easier places in the country to form a worker’s cooperative, according to Kevin McPhillips, the CEO of the Havertown-based nonprofit Pennsylvania Center for Employee Ownership, because the commonwealth has designated this type of organization separately from other business forms like corporations and partnerships. New Jersey also has specific regulations enabling the formation of worker cooperatives.

For many it builds stronger retention and loyalty to the organization. When people are owners, they have more devotion to the company, so turnover is generally lower, resulting in lower costs for recruiting, hiring and onboarding.

Some believe worker cooperatives are more apt to deliver better service because the employees care more about their end work product. They’re more devoted to safety, quality, and minimizing waste.

“Home care agencies struggle with retention and providing consistent care,” says Cooper. “For the simple fact that you have workers who stay longer, it really impacts your bottom line.”

Cooper also believes that when workers have a say in how the business is run and the work that they do, they feel more empowered and that then translates to better care.

Scott Moon, the executive director at Baker Project, an employee ownership advocacy group related to the Pennsylvania Center for Employee Ownership, says that while worker cooperatives can be a good vehicle for succession planning, owners will need to make some hard decisions about their objectives if they’re looking to sell their business.

“Business owners who are having a difficult time finding a buyer for their company but want to see it continue to exist and support their employees can use a worker cooperative as a way to pass their work to a new generation of owners,” he said.

Jobs and the company’s brand can be kept in place and the owner can be paid for the value of their company by the workers via a seller’s note or through a bank loan, which is serviced by the company.

“There are many owners who feel it’s not just about selling and that their business has an ongoing responsibility to their employees, their customers and their community,” Moon said. “So this type of strategy best fits those goals.”

Cooper has found that their organization has a unique culture because of their employee ownership structure.

“It’s the kind of environment where workers can say, ‘Hey, listen, I see a problem, I see a gap. Here’s how I think we should solve it. What do we need to do to make it happen?,” she said. “We have a happiness committee, we have a policy action group, we have a safety committee all led by board members who are worker-owners.”

Worker cooperatives have their drawbacks. Owners need to understand that they’re giving up complete control.

Because decisions are being made by elected groups of managers that need approval from employees, processes can be slower and potentially messier. Everything is open for scrutiny, and sometimes this level of transparency can hinder decision-making. Some employees may be enthusiastic about attending meetings and paying attention to the organization’s management, but others may not be up for the time and responsibility it takes.

Financing is also harder. According to Cooper, banking is a “real challenge” because, in her experience, worker cooperatives can’t apply for typical small business loans.

“Most financial entities are looking for someone who owns 5% or more of the company, and we’re constantly explaining to banks and other institutions that this is a different model,” she said. “This is something that we’ve been advocating for with legislators but it still continues to be a struggle.”

For those interested in forming a worker’s cooperative, many organizations can help. For example, the U.S. Federation of Worker Cooperatives and the Democracy at Work Institute both provide technical assistance, education/training, advocacy, and a directory of worker co-ops. Other organizations like the ICA Group, Project Equity and Workers to Owners Collaborative help businesses transition from a traditional form of ownership to worker ownership.

Cooper acknowledges that worker cooperatives aren’t for everyone, but they do present a “unique way” of viewing work.

“In my opinion, the benefits outweigh the challenges,” she said. “It’s about everyone feeling empowered to do their best.”