Article written by:
Nathan Flowers
Financial Analyst
The United States labor market is as competitive as it has been in many years. Low unemployment levels have led to increased mobility in the job market, and the need for employee incentives to reduce turnover. A sense of ownership can increase an employee’s desire to remain at their current position and take further pride in their work. Perhaps this is why GBQ is working with more companies than ever on explaining the implementation of an Employee Stock Ownership Plan or ESOP. Under an ESOP, the current ownership can sell a minority interest, controlling interest, or full ownership.
While there are significant financial benefits to operating under the corporate structure of an ESOP, the change of culture among the employees could be the most important shift the company sees. Throughout many of our meetings with the management of our ESOP clients, some of which have sold into an ESOP within the last three years, we have heard about the changes they have seen through the day-to-day operations and overall employee relations. We have heard of some of the employee initiatives that were born as part of an ESOP. One example is an employee “take-action” group, a group that was started as part of the ESOP formation. This group consists of a small group of employees who are tasked with voicing the opinion of all the employees represented by the ESOP to management. This is a single example of the ways we have seen employees taking advantage of their ownership in the business.
Selling to an ESOP is a way of showing loyalty to one’s employees compared to alternative ownership transition strategies. When an owner sells to a competitor, private equity firms, or issues shares publicly, they run the risk of the new ownership making major overhauls and potentially either replacing or doing away with certain employees. Many of the owners we have spoken to that sold into an ESOP cited loyalty to their employees, coupled with attracting new talent in this competitive labor market, as key reasons for not selling to competitors or private equity. An ESOP allows for the current owner to still be involved within the company while giving their employees the platform to have more incentive to grow within their current position rather than look elsewhere to grow.