In more than 30 years of advising family business owners and others on employee stock plans, I have often seen surveys of ESOP employees. Invariably, they document employees’ greater financial and job security, as well as satisfaction, compared to their counterparts at conventional companies.
But how do ESOP owners and top managers feel? Are these CEOs equally positive about the benefits of employee ownership?
To determine how C-suite executives feel about ESOPs and employee ownership, we at Verit Advisors® decided to ask them. We commissioned original research from Greentarget, an independent research firm, who surveyed 200 company founders and C-suite executives across a wide range of industries. It involved 90 companies with a full or partial ESOP, 80 companies considering an ESOP and 30 companies not considering one.
We were pleased to find that ESOP owners were almost unanimously satisfied with their employee structure. At least 90% of ESOP leaders agree on the ESOP structure:
• Preserved their company’s legacy.
• Improved their financial and operational performance.
• Delivered significant tax benefits.
• Provided employees with better incentives than non-ESOPs.
• Generated opportunities for gift and estate planning.
“There is a growing understanding that the ESOP structure empowers individuals to realize the American dream while rewarding selling shareholders fairly for the business they have built,” said William McDermott, a current CEO of multiple ESOPs in the construction industry.
From our research, we were surprised to find that the perceived benefits of the ESOP structure evolve over time, with respondents’ satisfaction increasing the longer it has been since they completed their ESOP transaction. While leaders of ESOPs who completed within the past five years most appreciate the tax and business benefits of an ESOP, leaders of ESOPs who completed at least a decade ago value their employees’ higher sense of purpose plus the benefits the ESOP structure they believe offers them.
We were pleased to learn that ESOP leaders believe that employees gain a sense of inclusion, equity and purpose from an ESOP – values that are increasingly important to employees, especially younger ones. Respondents believe that these feelings of belonging lead to a higher retention rate for employees and management.
Of course, choosing the ESOP route is not without its challenges. ESOP leaders most often cited operational rules and the complexity of regulatory reporting, including the time it takes to comply with regulations. Still, these CEOs said other potential challenges, such as the cost of share buybacks, the company’s capitalization and the extent to which employees master the ESOP structure, turned out to be less severe than expected.
As for motivation to form an ESOP, leaders say tax savings are an important consideration, but taxes alone are not enough to motivate completing one. Company founders tend to prioritize personal tax benefits when considering an ESOP, while non-founders of ESOP leaders find corporate tax benefits more compelling. However, respondents said that if taxes are the only priority without evaluating an ESOP’s work culture and employee benefits, they are less likely to actually complete the plan.
For companies considering an ESOP, CEOs said networking provides a valuable source of information about employee ownership. While searching online provided much of their initial information about ESOPs, leaders of future ESOPs value networking with their peers, as well as the expertise of their advisors, providing key information and insights about employee ownership.
In upcoming blog posts, I plan to focus on other findings from our research, especially as the research has made it clear that as employee asset consultants, we would benefit from accelerating our outreach and education efforts. ESOP outlook said they want more details on the operational and workforce impacts of employee ownership, including the social and cultural benefits.
We believe the findings in our first Property monitor employees come at an opportune time as the number of ESOPs rises, reflecting vigorous ESOP-related activity in Congress and the state legislature. Approximately 6,500 ESOPs in the US cover 14 million participants. Interest in employee ownership has increased to such an extent that I continue to believe that this will be the decade of the ESOP.
For more information and detailed findings from Verit’s Property monitor employeesgo to oldr website and our research link on the homepage.