An Employee Ownership Plan for America's Schools
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  • Oct 22 2014

An Employee Stock Ownership Plan for America’s Public Schools

School teachers and leaders at America’s public schools typically don’t place much value in private school choice’s worth. However, that education policy could raise their own stock considerably—and literally. As school choice grows, a teacher investment proposal introduced long ago deserves revisiting.

Teachers’ unions and school district representatives spend millions of dollars advocating and lobbying against initiatives to allow parents greater choice over where to send their children to school. What they typically support includes smaller class sizes and more administrative jobs in addition to protections that make it difficult to dismiss ineffective teachers and properly compensate effective ones.

But are those policies the only—or even the best—way to reward teachers?

In Can Teachers Own Their Own Schools?, noted economic historian Richard Vedder makes the case for turning over ownership of public schools to public school employees through an employee stock ownership plan (ESOP), which began in America’s private sector during the 1970s.

According to the National Center for Employee Ownership, about 25 million private sector workers own shares of their employer either directly or indirectly through their retirement accounts or stock options. Also, there are 100 American companies, each with more than 1,000 employees, where the company’s employees own a majority share of the company.

Such a change would give principals, teachers, and other staff ownership and, as a result, autonomy, over their schools—something no doubt desired amid increasing state and federal encroachment in everyday academic affairs.

Under Dr. Vedder’s ESOP proposal for public schools, teachers and other employees would be given shares of stock ownership in the public schools where they are employed. As a starting point for discussion, Dr. Vedder suggests principals be allotted 200 shares for each year of experience. Teachers and other professional staff (assistant principals, counselors, librarians) would receive 100 shares for each year of experience, and support staff (bus drivers, cafeteria workers, and janitors) would get 50 shares of stock for each year of experience. The principal would be the initial CEO of the school, which would own all its current property.

Such a change would give principals, teachers, and other staff ownership and, as a result, autonomy, over their schools—something no doubt desired amid increasing state and federal encroachment in everyday academic affairs.

Where would the freedom come from to adopt such a change? Each employee-owned school would operate in a competitive educational marketplace. All taxpayer funds devoted to K–12 education would be allocated directly to parents to be used to offset tuition payments at any school—private, charter, or employee-owned school—which would have to compete for students and their funds. Academic “accountability” for those schools no longer would be determined by state or federal regulations—such as No Child Left Behind or Common Core—but rather by parents and their decisions to enroll or not enroll their children in a particular school.

In exchange, all schools, including employee-owned schools, would have complete power to decide their tuition, curriculum, class size, pay scale, student discipline, employee dismissal, governance, and all other school policies. All laws that apply to private schools would apply to employee-owned schools as well.

Updating and simplifying an example from Dr. Vedder, suppose one of America’s public schools has one principal, 50 teachers, 22 professional staff, and 28 other staff. Consider also that each staff member has 15 years of experience. Under Dr. Vedder’s allocation of stock:

  • the principal would own 3,000 shares (15 years x 200 shares per year)
  • teachers and professional staff members would own 1,500 shares each (15 years x 100 shares per year)
  • and other, non-teaching staff would own 750 shares each (15 years x 50 shares per year)
    • Total ownership shares = 132,000.
      • teachers = 75,000 shares
      • other professional staff = 33,000 shares
      • other non-teaching staff = 21,000 shares
      • principal = 3,000 shares

How much would those shares of stock be worth?  Suppose the value of all school assets minus debt—land, building, buses, computers, desks, books, etc.—was $5,000,000 (one report shows that, in 2010, average construction costs for new and fairly large elementary, middle, and high schools were $14.8 million, $30 million, and $54.9 million, respectively. Of course, most schools are not new, making depreciation a factor, and all schools are not large. That said, $5 million may be a significant underestimate.)

Suppose also those shares were worth two times the book value—the value of assets minus debt. (Companies in the S&P 500 are currently worth well over two-and-a-half times book value. Moreover, S&P 500 companies do not have a guaranteed market as K-12 schools do through taxpayer funding and compulsory attendance laws.)

With that in mind, if the value of shares—that is, if the price of these shares at which employees could actually sell them—is two times book value, then a teacher’s 1,500 shares would be worth more than $113,000 at the start ($5,000,000 divided by 132,000 shares equals $37.88; and $37.88 multiplied by two multiplied by a teacher’s 1,500 shares equals $113,636).

Each teacher in this example is now $113,000 wealthier and part owner of a school.

Some likely would be skeptical that public school employees should be given ownership and control over tens of thousands of public schools worth billions of dollars. But skeptics should consider this significant transfer of wealth in light of the other piece of the Vedder-ESOP plan—universal school choice.

Employee-owned schools would face a market test—students and the funds dedicated to their education would flow to the schools their parents deem best. If the employee-owned schools could not attract enough students, employee-owners would face a stark reality: They either would have to:

  • improve the quality of their academic and social offerings,
  • hire new and better management,
  • sell their school land and facilities to another educational provider, or
  • see the value of their stock fall dramatically.

Thus, employee-owners would have a powerful financial incentive to offer excellent educational programs or sell to someone who will.

In the interest of even further increasing opportunities for parents to choose among schools while also giving school employees further ownership, Dr. Vedder’s proposal could be expanded: Why not allow public school employees to own vacant school properties?

Many urban school districts collectively own hundreds of vacant school buildings and have a poor track record in repurposing or selling them. There no doubt would be legal issues in transferring government-owned properties—public school facilities and land—to public school employees. But given other countries’ successful transference of government-owned enterprises to public employees, surely states and school districts could do the same.

Such acquisitions would increase the diversity and availability of educational offerings to parents. Instead of being largely the same in terms of academic offerings, employee-owned schools could differentiate themselves to attract families. They would have an incentive to do so to increase their student population and thus expand or open more schools—which would increase the value of their shares of stock.

Greater autonomy and ownership also would lead to higher job satisfaction among school employees. Teachers would be relieved of micromanaging from state and federal bureaucrats in exchange for more localized reporting—to parents and to their own leadership’s chosen accountability measures.

To that end, incentives for public school employees would become significantly more aligned with the interests of students and their parents.

Teachers, principals, and other school employees have every reason to look out for what’s in their best interests. There’s no shame in that. What professional doesn’t want better pay and security for a job well done?

Unions have long professed they’re the best entities to provide that. But their stock is dropping. It’s time school choice advocates put greater investment in those educating our nation’s children.

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