Moog Takes a Stand on Income Inequality

Income inequality has emerged as the main debate in the wake of the Great Recession.

In the United States, income inequality – the gap between the very wealthy and everyone else – has been growing markedly, by every major statistical measure, for some 30 years, but it has substantially accelerated in the last decade. The Wall Street Journal reports, “the top 3 percent of families saw their share of total income rise to 30.5 percent in 2013 from 27.7 percent in 2010, while the bottom 90 percent saw their share fall.”

This isn’t politics talking; this is data. Some of this is structural: caps on wages and wage growth due to a high employment rate (since reduced considerably) that encouraged part-time hires and fewer hours; a stagnant minimum age (also in the process of changing); and a tax infrastructure that (still) overwhelmingly favors the already affluent. But there is also a technology component, which has led to what the National Bureau of Economic Research calls “skill-replacing,” in which technology upheavals, whether we’re talking about the Industrial Revolution or the advent of digital technology, inevitably displace workers’ existing skills, often too abruptly for them to adapt to the new tech paradigm.

That thought could reasonably be extended to music, where digital certainly upended the careers of musicians – most notably drummers, who perhaps could withstand it less well than the others in the band. Percussion jokes aside, from drum machines to synthesizers, digital made a difference, and the evidence of pushback is considerable, such as when, in 2004, the AF of M and advanced synthesizer maker Realtime Music Solutions went at each other in court over whether a synthesizer should be permitted to replace live musicians in Broadway’s orchestra pits.

Moog Makes Nice

So that’s the context for this bit of news in June: Moog Music, founded by inventor and entrepreneur the late Robert Moog, who created what many would agree what became the most popular physical musical instrument since the electric guitar, transferred 49 percent of the ownership of the company to its workers, through an employee stock ownership plan (ESOP). Michael Adams, the company’s owner and chief executive, further established a trust that will lend the company the money to buy out his remaining 51 percent over about six years, using pretax dollars. Upon their retirement and after a specified vesting period, individuals will be able to cash out the shares they accumulated over the course of their employment. According to the New York Times, a source at the company estimated that as a result of the plan and assuming some level of growth going forward, a production employee who starts out making $12 an hour could receive a payout of about $100,000 at retirement age.

Despite the fact that its name has become literally a trope for the entire synthesizer category, just as Xerox has become synonymous with photocopiers, the company more than once has had trouble making payroll in years past. At the same time, though, Moog as a company remains more like one of the scores of boutique amplifier or stomp-box manufacturers out there: artisanal and craft-like, if chronically impecunious. That suggests that this is a route that others could take at a time when wages and other employee benefits remain hard to increase or even maintain. It’s not a strategy limited to small companies, of course – plenty of large corporations offer ESOP opportunities to their workers. But as a percentage of the company, Moog’s move is downright progressive, enough so that it might prompt harrumphs of “socialism” under the breath of some card-carrying one-percenters.

Real Benefits

But the advantages are concrete and pragmatic. Numerous studies show that employee ownership appears to increase production and profitability and improve employees’ dedication and sense of ownership. State-run studies show that on average, employee owners have considerably more in retirement assets than comparable employees in non-ESOP firms. The most comprehensive of these, a report on all ESOP firms in Washington state, found that the retirement assets were about three times as great, and the diversified portion of employee retirement plans was about the same as the total retirement assets of comparable employees in equivalent non-ESOP firms.

There are risks, of course. Employee stock ownership can increase the employees’ financial risk if the company does badly, and ESOPs can discourage portfolio diversification. But when your company is having trouble making payroll, portfolio diversification may be the least of your problems.

The bottom line here is that Moog made a move in a radically positive direction and scale, one that’s worth the entire MI industry paying attention to. Despite the enmity surrounding the economic debate at the moment, the momentum is clearly towards rectifying economic inequality. You don’t have to be Karl Marx to know a good deal when you see one.