Why giving workers stocks isn’t enough — and what co-ops get right

Addressing a common objection; why control matters more than liquidity

In my last post, I argued that worker co-ops can help restore declining social trust. But a common objection I keep hearing goes something like this:

Worker co-ops seem basically equivalent to a firm that gives its employees stock—but then permanently blocks them from selling it. Isn't that harmful? The ability to sell your shares is valuable. You might want to diversify your investments, liquidate shares to make a big purchase (like buying a house), or avoid having all your financial eggs in one basket. Why force workers to hold their shares indefinitely? If they really wanted to keep them, they could just choose not to sell.

At first glance, this objection feels logical. After all, publicly traded companies usually let people buy and sell their stock freely, giving investors plenty of flexibility. So, wouldn’t preventing workers from selling their shares in a co-op be bad for them?

But there are a few important details missing from this framing — let's unpack them step by step.

1. Most workers don't own much stock in traditional companies

So first of all, this objection doesn’t work for companies that are not publicly traded.

Secondly, even if employees do buy stock, employers have an army of lawyers and much more bargaining power than the employees, so they often pull contract shenanigans.

Lastly, while, in theory, nothing stops a regular employee at a publicly traded company from buying stock, in practice, most stock ownership is heavily concentrated among wealthy individuals. Workers usually don't own a significant percentage of the stocks. But worker co-ops fundamentally change this dynamic by giving employees shares directly, making stock ownership accessible and widespread, not just limited to wealthy investors.

2. We should distinguish between voting shares and non-voting shares

There are two kinds of shares:

• Voting shares: These shares give employees actual decision-making power within the company—allowing them to vote on important decisions. Crucially, co-ops do not allow these shares to be sold to outsiders, because if voting shares could be sold freely, external investors could eventually gain control, and the co-op would revert to being a regular capitalist firm.

• Non-voting shares: These shares provide financial benefits like dividends and can often be sold, allowing workers to access financial liquidity, diversify their investments, or buy a house. The crucial difference here is that the workers themselves (through their voting shares) control the rules around selling non-voting shares—making sure that financial flexibility doesn't compromise their ownership or control.

Compare this to traditional firms, which rarely offer meaningful control to employees. Employees might receive shares as part of their compensation, but these shares are usually non-voting. This means employees have no real say in company decisions, including crucial financial decisions like issuing new stock.

3. Why dilution matters (and how co-ops prevent it)

A common issue in traditional companies is something called ‘dilution’. Dilution happens when a company issues more shares, reducing the ownership percentage of existing shareholders. Think of it like owning a pizza: if someone suddenly cuts your pizza into smaller slices and gives some slices to someone else, your share of pizza is now worth less—even though you didn't do anything. Companies often dilute shares to raise money or grant new stock to executives or investors, and employees typically have no control over this process. Dilution can dramatically reduce the value of shares held by regular employees.

In a worker co-op, dilution can't happen without employee approval, because the employees hold voting shares and therefore control any decision about issuing more shares. This structure protects worker-owners from suddenly finding their shares becoming worthless or diluted without their consent.

4. Ownership alone isn’t enough, workers need real decision-making power

Now, let's talk about why simply giving workers some shares isn't sufficient. Ownership without decision-making power often feels meaningless to employees. This isn’t just theory, there’s solid research backing it up.

Let’s examine the study “Do Broad-based Employee Ownership, Profit Sharing and Stock Options Help the Best Firms Do Even Better?” by Blasi et al. This research looked at American companies that practice something the paper called “shared capitalism”, which means broadly distributing stock options, profit-sharing, and ownership stakes to workers.¹

The researchers wanted to understand whether “shared capitalism” improves company outcomes like profitability and employee retention. Importantly, they didn't just look at ownership alone—they also considered how employee empowerment (decision-making power, participation, and trust) interacts with ownership:

Let’s break this down:

• On the y-axis, you see voluntary turnover, meaning how often employees choose to leave the company voluntarily. Lower is better here because you want employees to stay—high turnover is expensive and disruptive.

• On the x-axis, you see employee empowerment, measured by how much employees feel trusted, participate in company decisions, and have access to information about their workplace. Higher empowerment means more participation and trust.

There are two lines here:

• The red line represents companies without “shared capitalism”—no meaningful employee ownership or profit-sharing. Notice that as employee empowerment increases (moving to the right), voluntary turnover doesn't change much. Employees who don't have ownership aren't less likely to leave even when given more responsibility or trust. It seems empowerment alone isn't very meaningful without an ownership stake.

• The black line represents companies with high “shared capitalism”—employees hold shares, receive profits, and have ownership stakes. In these companies, greater empowerment is clearly linked to reduced turnover (the black line slopes downward). Employees who feel empowered and have an ownership stake tend to stay longer.

In other words: ownership without empowerment doesn't mean much to employees, and empowerment without ownership doesn't keep them around. But together (ownership plus genuine participation and decision-making) these factors significantly improve employee retention. And importantly, the researchers found no negative impact on financial performance.²

TL;DR

It’s fine that co-ops prevent employees from selling all their shares, because they do provide financial flexibility through selling non-voting shares. The restriction on selling voting shares exists specifically to maintain worker control. This prevents dilution and ensures the firm continues to be run democratically by its workers.
The data tells us this structure is valuable. Giving workers shares without giving them real power isn’t effective, employees need genuine control to benefit fully from ownership.

1. Probably because “socialism” or “labor control” are bad no-no words in the US.

2. More specifically, the return on equity.