ESOPs and Other Forms of Employee Ownership
Thinking Like An Owner Pays!
"The evidence is overwhelming. Done right, employee-ownership can transform a company, improving performance and accelerating growth. It can create a sustained competitive advantage, driving business success that builds wealth for founders, investors, and employee-shareholders alike."
Martin Staubus, Director of the Beyster Institute,
Rady School of Management
Employee Owners have the potential to experience more job satisfaction, more income and job security, a better retirement and more overall fun in life freedom than many others.
Our motto is: “Think like a Top-Notch CEO and get rewarded like one.”
The sad truth is: Many ESOP companies do not know how to fully tap into this immense potential.
- A business owner who has converted your company to partial or 100% employee ownership?
- A business owner who is considering implementing some form of employee ownership?
- An executive in an ESOP company or a company that has implemented another vehicle for employee ownership?
- An employee-owner and emerging leader who wants to learn more about how to create even higher levels of success, both for the company and personally?
If you have answered “Yes” to any of these questions this page is for you.
What are the Benefits of Employee Ownership?
Employee-owners have the potential to
- Experience more job satisfaction and security
- Receive a better retirement
- Enjoy more overall fun in life than many “typical employees.”
Business owners who convert their companies to partial or 100% employee ownership via an ESOP (Employee Stock Ownership Plan), or using other employee ownership vehicles, can have many benefits, for example:
- Substantial tax savings
- Asset diversification
- Exit strategy (as an alternative to selling the business to non-employee-owners)
- Access to bank loans for financing the purchase of company stock allocated to employee-owners
- Successfully transitioning the business to one or several children of the owner, when not all of his/her children want to be involved in the business. An ESOP can provide the funding for a monetary inheritance to those family members who are not involved in owning the business
Additional POTENTIAL benefits are:
- Increases in employee motivation and willingness to step up with a mindset of ownership
- Increased capacity for the company to attract and retain top talent
- Increased profit margins compared to non-employee owned competitors in the same industry (see NCEO.org)
There are so many benefits for the original owner of the company AND for its employees who become employee owners.
That said, what could go wrong?
What are the factors that decide whether:
- Employees’ motivation is indeed greater than that of “regular” employees?
- Talented staff members stay or leave
- Profit margins are greater than those of competitors in the same field?
Let’s take a closer look at why these benefits often get lost - and what to do about it.
If you get this right, your ESOP company will be a shining example for what is possible at a well-run ESOP company. Get it wrong, and you will lose out on a lot of profit, human talent, satisfaction, and fun.
One more comment before we proceed: We refer to “ESOP” - however, the conversation also applies to other forms of employee ownership, via various types of stocks, stock options etc.
Just because the company set up an ESOP or other employee ownership vehicle, it does not mean the employees really understand what it is. To some the announcement of the company forming an ESOP might sound like “Okay, you are giving me some nebulous retirement benefit I might or might not see some day.” Or, “The owners are only doing this to save taxes or plot their exit strategy.”
Thankfully, many companies are doing better than that. They offer some initial training about ESOPs, how they work, what the opportunities are for the employees who now become owners, and what the employees can do to make the company better.
However, if a 1-3 day workshop at the introduction of the ESOP, is the only thing the company does, it is not likely to work out well with respect to the ESOP leading to enhanced staff motivation, profit margin or talent retention.
One has to realize that most people have been “regular” employees for a long time. Chances are they have never had the opportunity to get much insight into what it means to actually own a business. It is a foreign concept for most employed people, and it takes more than a few days to get comfortable with the idea and jump on the opportunity.
Once the employees understand the opportunities, they still have to buy in. If they are encouraged to give feedback but they feel the feedback is not valued or even listened to, they likely dismiss the offer as insincere. Worse, an interested, positive, talented employee can become disengaged and cynical.
If You Want to Reap Real ESOP Success...
... you need to establish a culture that supports the exchange of ideas, between all levels of staff, across all departments. Of course, you still need top leadership - yet, the leadership team makes a conscious effort to involve the others.
Getting the ESOP culture right is an ongoing effort - both for companies that are just getting started with their ESOP, and those who have done it for a long time (the latter tend to have different challenges, such as how interest new, especially younger, employees who might see themselves far from receiving a retirement benefit).
That is true in almost any professional field of expertise.
Traditional employee thinking it is ultimately centered about what does the employee get in return for working for the company (compensation, time off, benefits, perks, flexibility etc). It’s a time-for-money mentality.
When employees think as owners, they know that the company’s bottom line affects everyone’s pay and job security. They know (or learn) what factors influence the bottom line - including their own daily actions (or inactions). It is a different game altogether. It’s more of an “if it’s to be, it’s up to me” mentality.
To make sure your ESOP company does not fall into this ESOP Success Trap, it is necessary that the employees learn about how business actually works in general, and most important, their business in particular.
However, it may be easier said than done. Fear-driven objections can range from:
- Business is too complex (“I have never been good at numbers stuff or accounting”) to
- Employees feeling they do not have time for anything else in addition to their current workload
- It appears to be more responsibility than they want or it represents too big a change
In a given team, typically, there are some people who are
- Eager about employee ownership
- Neutral (cautiously waiting to see “how this will turn out”)
- Skeptical “(“this might blow over and go away as other things have in the past”)
- Outright against it (“I hate this - I don’t have time to learn about whatever accounting number. This is not my job. If I wanted the additional responsibility, I’d start my own business. ”)
The key: Start with the most enthusiastic people.
Ask the “neutral” people to move towards becoming at least mildly positive; the skeptical people to become neutral for a bit - and leave the people who hate it alone for the time being - usually, they will either come around over time or leave the company.
We have tested this approach and have found that is works extremely well. We provide skillful coaching along the way to ensure your transition to an ESOP company is both successful and beneficial for everyone.
Like everything worth doing, it takes time, patience, mentorship and coaching to develop employees into employee owners. The rewards, however are tremendous, both from a monetary and human development standpoint. 6-12 months of skillful support works wonders (to read a case study click here).
With consistent mentoring and coaching of both the top leaders and the emerging leaders, you will soon reach a “tipping point”, i.e., the point where employee ownership is wholeheartedly embraced by the vast majority of people in your company. It is an awesome feeling and your company’s bottom line will soon reflect it.
Don’t Let The Amazing Benefits of Your ESOP Be Swallowed by These Traps
You don’t have to fall into any of the ESOP success traps we described here. We can help your company be the best ESOP company in your industry.
Our motto is: “Think like a Top-Notch CEO and get rewarded like one.”
What becomes possible in your company if everyone thinks and acts like a Top-Notch CEO - meaning everyone behaves like a responsible business owner who deeply cares about the organization thriving?
What kind of wealth could you build with that mindset in your organization?
We work with ESOP leaders in 3 different roles:
1. Top ESOP Leaders
Top ESOP Leaders (CEO and other executive leaders) working with us become even better at both leadership and business - and the bottom line shows it. They get confidential feedback. They are eager to learn more to better themselves. Top Leaders want to create more income, work satisfaction, fun and have a greater sense of balance.
2. Emerging Leaders
Success in ESOP cannot come from top leadership alone. Emerging leaders need to be fostered in order to build the synergy (and future succession) that brings tremendous growth and sustainability.
We recommend supporting the professional and personal growth of emerging leaders from all of your departments. Discover what we can do to help you with that important task.
3. HR Professional
In larger companies, the task to provide top-notch training resources to emerging leaders and top leaders often falls on you, the HR professional.
Discover what we can offer to support you.
"Executive coaching has become a badge of honor."
In 1954, Roger Bannister showed the world that a mile could be run in under 4 minutes - an achievement everyone at that time thought was physically impossible. With the mental support of Franz Stampfl, Roger Bannister broke that belief - first in his mind, and then physically.
As your Top-Notch CEO Coach, we support you in raising your game to an even higher level. Your benefits are more personal and company success, greater income, enhanced work satisfaction; and even more fun and a greater sense of balance.
Save Yourself a Lot of Time, Frustration & Money and Learn From People Who've Been There and Done That
Our founder, Dr. Stephie Althouse, has extensive executive experience, has turned around and grown "companies with smarts" and successfully coached and consulted with ESOP companies and their leaders.
She was asked to write about her experiences and as a result authored the book "101 Quick Tips for ESOP Leaders."
Read more about her background here.
Top-Notch CEO Offers a Number of Ways to Support You:
- Leadership and Business Coaching Circles for Top ESOP Leaders and for emerging ESOP leaders
- 1-on-1 coaching for ESOP Leaders
- A Fresh Eyes Assessment™ of your ESOP companies to gain a fresh perspective on opportunities and challenges that might have been in your blind spot, yet are likely to be critical to the sustainable growth and prosperous future of your company.
- Following the Fresh Eyes Assessment, we debrief you and co-create and action plan with you
- We also offer hands-on executive support for implementing such action plan.
- Executive support for business growth, turn around, succession planning, and of course, mentoring in employee ownership thinking
- Customized workshops for your employee owners based on proven methods for accelerated learning (and that are actually fun to participate in)
- Keynotes for your special events, e.g., celebrating ESOP month, a company anniversary or a major milestone
“Thank you for your strategic guidance and the “Fresh Eyes Assessment. Through your leadership, and in a short time, we exceeded our expectations in revenue and profitability, and Giroux Glass has emerged as a stronger, independent employee ownership managed company.”
CEO, Giroux Glass, Inc., Girouxglass.com
Subsequent to our work together (and of course, due to the hard efforts of the Giroux team!), the company received the prestigious Excellence in Ownership 2014 “Working Better Award” from the National Center for Employee Ownership.
Also, we congratulate Marisela Miranda, Giroux's assistant controller, for being selected as Employee-Owner of the Year, for the California/Western States Chapter, for 2015-2016!
Think like a Top-Notch CEO and get rewarded like one.
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