Should You Make The Scary Switch To ESOP (Employee Share Ownership)?

Employee Ownership Expert, Dan Ohler, says an ESOP Gets Employees More Engaged & Thinking Bigger Picture

Employee Ownership Expert, Dan Ohler, says an ESOP Gets Employees More Engaged & Thinking Bigger Picture

I’ve written before* about the importance of having motivated employees if you want to deliver consistently excellent customer experiences. An ESOP – Employee Share Ownership Plan (or Employee Stock Ownership Plan) – is one way to add motivation.

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Benefits of ESOPs

According to today’s guest, Dan Ohler, of ESOP Builders, employee-owned companies have:

  • double the customer loyalty
  • 20% higher productivity
  • 200% lower turnover
  • 3.5 times more job applicants
  • less absenteeism.

Business owners are often frustrated by employees who don’t seem to care about the company as much as the owner does. But, if you think about it, why would they? Regular employees don’t reap the rewards of owners, and the business wasn’t their brainchild.

Once they become owners, however, they see things quite differently. In fact, research shows that employee-owned companies are more likely to survive during tough economic times. As with founders, once they are owners they will do what it takes to keep the company alive.

ESOP As Exit Strategy?

ESOP Plans Help Small Business Owners Ease Into Retirement

ESOP Plans Motivate Staff & Can Help Small Business Owners Ease Into Retirement

As the baby boomers hit retirement age, many of them are considering this route to deal with succession. According to Ohler, 70% of small and mid-sized company owners in Canada are looking to retire within the next 5 – 10 years and 70% of them have no succession plan! The US data is likely similar.

A friend of mine recently sold her business and the buyer wasn’t someone she had confidence in to carry on the customer experience focused tradition. Selling to employees instead of strangers can be a way of generating that retirement income while leaving your company in good hands.

Should You Consider An ESOP?

Despite the many benefits (which can also include tax benefits for both founders and employees), switching to an ESOP model is not easy, and should be done with the help of experts. Some of the issues to consider include:

  • Do you want all employees to be eligible, or just certain key ones? (Personally, I think that including all employees makes the most sense, but many owners aren’t ready to take that big a step initially.)
  • How will you help employees finance share purchases?
  • What will happen if somebody quits or needs to be fired?
  • What if they want to still work at the company but sell some of their shares?
  • How should the shares be priced? (Hint: bring in a professional business valuator.)
  • What are the legal and tax implications of the structure you choose?

Tips for Successful ESOP Implementation

  1. Get professional advice.
  2. Get employees at all levels involved in developing the plan and setting the rules around it.
  3. Teach employees to read and understand financial statements.
  4. Manage employee expectations. Just because they own a few shares doesn’t mean that every one of them suddenly has a say in every decision.

*See, for example,
Want to Grow Your Business Quickly? Focus on Employees First!
Wish Your Staff Were More Productive? Here Are Some Tips You Might Not Have Thought Of
This Results Focused Strategy Can Make 2016 Your Company’s Best Year Ever

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