Giving employees a stake in company ownership through an employee stock ownership plan (ESOP) is a powerful way to align incentives and build an ownership culture. As expert ESOP consultants explain, implementing an ESOP not only motivates workers, but also leads to better corporate performance over the long-term.
What are ESOPs and How Do They Work?
An ESOP is an employee benefit plan that gives workers ownership interest in the company. Shares of the company are held in a trust on behalf of employees. As an employee works for the company, they earn a right to the shares in their account. Employees can cash out their equity when they leave the company or retire.
The main benefits of an ESOP include:
Motivating and rewarding employees through equity ownership
Providing retirement benefits to workers
Allowing the company to take tax deductions on ESOP contributions
According to research, ESOP companies show better sales growth, employment growth, and sales per employee compared to non-ESOP firms.
The Role of ESOP Consultants
Implementing and managing an ESOP is complex. ESOP consultants are third-party experts who advise companies on setting up and running an optimal ESOP. They handle fiduciary duties to make sure the ESOP operates in employees’ best interests.
Specifically, ESOP consultants help by:
Evaluating if an ESOP makes strategic sense for the company’s goals
Helping establish ESOP legal structure and plan documents
Managing the ESOP on an ongoing basis including appraisals and recordkeeping
Educating employees on the plan so they understand the benefits
Serving the fiduciary needs to align the ESOP to regulations
The Power of an Ownership Culture
Research shows that employee ownership plans lead to more engaged and fulfilled workers. When employees also have an ownership stake, they are incentivized to think and act like owners. This leads to an empowered workforce that puts the company’s interests first.
Main benefits include:
Employees support company growth and profitability
Workers are invested in improving policies, processes, and products
Decision-making autonomy increases at lower levels
Employees go above-and-beyond basic responsibilities
For example, the NCEO found that ESOP companies have a higher corporate survival rate over the long-term. Shared ownership simply motivates workers to increase efficiency, collaboration, and innovation on behalf of the company.
In Closing: Equity as a Competitive Advantage
Implementing an ESOP is a major strategic move that gives your company an edge. With employee ownership plans, businesses can align incentives to build a stable, high-performance workforce for the long haul. As expert ESOP consultants will tell you, shared equity arrangements lead to fulfilled employees, profitable growth, and a sustainable competitive advantage.