Typically, no one cares more about a company’s success than the owner. They have the most to gain by its success and also the most to lose. Wouldn’t it be great if there was a way to create that same sense of ownership in the minds of every employee and provide an incentive for them to work hard and stick around? An ESOP-structured company does just that.
An Employee Stock Ownership Plan, or ESOP, is a way to give employees a tangible stake in the company’s success by providing stock ownership to everyone.
Each employee’s account is credited with an appropriate number of shares of company stock or cash contributions throughout the employee’s employment. After retirement, death, disability, or other termination of service, the employee’s account is distributed to them (or their beneficiaries) in shares of stock, cash, or a combination of both. The amount of disbursement is determined by applying the current fair market value of the company stock at the time of separation in proportion to the number of shares in the employee’s account.
Since the amount depends on the value of the stock at the time it is disbursed, there’s a continuing incentive for the employee to continue to improve the company’s bottom line.
Tax-free contributions can be made by the employee, and for this reason, an ESOP is designed to benefit longer-term employees who are there the longest. There is typically a vesting period before benefits can be earned. The longer an employee stays with a company, the more vested they become, and the greater the benefit that can be realized.
Employee Stock Ownership Plans benefit employers, employees, and customers.
ESOP Employer Benefits
One of the biggest frustrations that businesses face is employee turnover. In some industries, rates can be as high as 30%.ESOP companies report dramatically lower turnover than average. By keeping the best employees on board longer, companies can reduce recruiting and training costs while avoiding the lost productivity that occurs during onboarding.
While working, employees understand how they benefit from cost-savings. They tend to be more proactive about acting in the company’s best interest from turning off the lights to providing outstanding customer service.
Very few companies provide retirement benefits any more. If they do, they’re typically in the form of a 401k plan that may or may not offer any company contribution. ESOPs, however, build retirement funds over time without any monetary investment by the employee. Research has demonstrated thatESOP retirement benefits are typically larger and more equitably distributed. That’s something work sticking around for.
Employees at ESOP companies feel though the have a bigger voice in decision-making. This makes them more engaged. When they feel their performance matters not just for the company but for themselves and their co-workers, it leads to a greater sense of job satisfaction.
Employees are more likely to surface issues quickly, act in the best interest of the company, and solve problems. Employee ownership improves trust in the company and fosters a greater sense of teamwork.
ESOP Customer Benefits
Customers benefit from ESOPs, too.
They’ll get better customer service by employee-owners, who now have a vested interest in retaining customers and growing revenue.
Because there is significantly less turnover, there is a consistency that benefits the company and the customers. With experience, employees are more knowledgeable about products and services and can provide better service. Long-term relationships can lead to a better customer experience.
The Winter-Dent Difference
Winter-Dent knows ESOPs. That’s because we’re an ESOP, too. You can be sure that the experts you work with are invested in making sure your experience and solutions are the absolute best they can be.