Turnover has long been a challenge for businesses, but today, employee disengagement presents an even bigger threat.
Recent Gallup research reflects that only 31% of U.S. employees consider themselves engaged with their work, which is the lowest level since 2014.1 This aligns with the 62% of on-site workers who define themselves as “quiet quitters” – remaining in their roles while mentally checked out2 – and the 58% of hybrid workers who admit to “coffee badging” – coming into the office just long enough to be noticed, then leaving.3
This chronic level of employee dissatisfaction takes its toll. Turnover rates spike, and the churn costs employers about 33% of an employee’s annual salary to replace them once direct and indirect expenses are factored in.4
For ESOP companies, there are additional considerations. Turnover may trigger additional underlying costs and challenges, and could also erode the ownership culture that is central to your ESOP success. Awareness is key, as is developing effective employee retention strategies that sharpen best practices, reduce churn, and champion employee ownership.
How Turnover May Affect Your ESOP
Employee owned companies offer unique advantages that help attract and retain employees. However, when employees disengage and ultimately leave, it can create financial, administrative, legal, and cultural challenges that can affect your ESOP and employees’ overall retirement savings.
Financial Impact
- Lost productivity and efficiency: Employee disengagement or outright quitting can slow productivity, weaken collaboration, and undermine a company’s performance. Since share value is directly tied to company performance, valuation could be affected — reducing the financial benefits for all employee owners
- Increased repurchase obligations: Employees vested in the ESOP are legally entitled to be compensated for their shares through a company buyback. High turnover accelerates repurchase obligations, potentially reducing cash flow and putting the plan’s long-term sustainability at risk
- Recruitment and training costs: While mentioned earlier, the substantial expense associated with recruitment and training bears repeating. Advertising, onboarding, training, and the natural learning curve on the way to full productivity can add up to as much as one-third of the annual salary of the employee who departed. Plus, the time allocated to these activities is diverted from larger strategies, which might delay maximizing the financial and cultural benefits of employee ownership
Administrative & Compliance Challenges
- Managing vesting schedules and share allocations: Churn disrupts ESOP administration, which makes it practical to partner with an experienced ESOP third party administrator. Otherwise, as employees earn shares over time through vesting schedules, the complex process of frequently recalculating share allocations, forfeitures, and redistributions could prevent timely equity planning
- Overburdened Human Resources teams: High turnover puts even more pressure on HR professionals, who are typically strapped for time under normal circumstances. Workloads increase to accommodate hiring, onboarding, training, and exit processing, as well as the required ESOP recordkeeping. As a result, stress levels and administrative costs usually increase, and efficiency could decrease.
- Regulatory compliance: ESOPs are governed by ERISA regulations that ensure fair and equitable treatment of all employee owners. Churn can make plan auditing, nondiscrimination compliance, and fiduciary obligations chaotic — potentially creating plan and distribution compliance issues, which underscores the importance of working with a trusted ESOP consultant
Cultural & Engagement Risks
- Weakened ownership culture: ESOPs rely on a strong ownership mindset, where employees empower themselves and each other to directly impact company success and, ultimately, everyone’s retirement benefits. High turnover could send a message that there isn’t a viable long-term future with the company. This could make remaining employees less inclined to embrace innovation, collaboration, and shared decision-making, which can debilitate culture and benefits maximization
- Workplace toxicity: A lack of leadership and transparency from the top down can fracture a team, leading to less productivity, gossip, rumor mills, and low morale. Since ESOPs are by nature inclusive and participatory, employees who perceive being passive participants instead of empowered owners may become disillusioned and choose to leave
- Lagging team morale: It doesn’t take long for negativity to spread throughout a team, which can encourage quiet quitting and subsequently build resentment and burnout among those picking up the slack. ESOPs are dependent on all employee owners contributing to shared goals, and underlying frustrations can quickly derail collective purpose
Best Practices to Keep Turnover Low & Engagement High
Being aware of how churn can create pitfalls for ESOP companies can go a long way to help reduce turnover and attract new hires.
Acting on employee engagement ideas and fostering an empowered ownership culture can address lack of career development, lack of workplace recognition, stress and burnout, and other top reasons employees leave.
It comes down to this: Employees want to work where they’re valued for their contributions and cared for as people. ESOPs outperform non-employee-owned companies in creating this environment and experience — but it doesn’t happen by chance.
Use these suggested best practices to be intentional about creating an ownership culture that attracts, keeps, motivates, and rewards employees committed to long-term shared goals:
Provide clear career development opportunities
Career advancement isn’t always about promotions. Learning opportunities, skill-building, and more challenging responsibilities satisfy many employees’ need for growth.
- Offer mentorship programs to help employees build long-term career paths
- Provide cross-training so employees can learn new skills
- Invest in professional development programs (conferences, certifications, etc.) that help employees expand their knowledge and explore new roles
Hold managers accountable for positive leadership
Poor management is one of the biggest reasons employees quit. Coaching and feedback loops are key.
- Train managers on effective communication and constructive feedback
- Schedule regular one-on-one meetings between managers and employees
- Continuously gather employee feedback and act on it
Authentically recognize and appreciate employees regularly
Employee recognition helps build a culture where employees feel seen and appreciated, which boosts loyalty and motivation.
- Create a structured recognition program, such as awards, bonuses, and verbal appreciation (thank yous from managers)
- Encourage peer-to-peer recognition so employees can highlight each other’s exceptional contributions
- Acknowledge milestones including anniversaries, achievements, and ESOP growth
Monitor workloads to manage stress and prevent burnout
Overwork leads to burnout. Under-utilization leads to boredom and disengagement. Both will eventually drive employees away.
- Use time tracking and workload balancing tools to evaluate and adjust tasks
- Schedule quarterly workload check-ins to better understand how employees are feeling
- Offer flexible arrangements when possible to support work-life balance
Celebrate your ESOP
Periodically reminding employees of the powerful benefits of employee ownership can spark greater loyalty and performance.
- Participate in Employee Ownership Month (October) to encourage plan participation
- Educate employees on various aspects of ESOPs and how they can apply this knowledge
- Frame the long-term benefits of the plan and what consistent participation could mean for their retirement savings
Build the Future on Employee Ownership
We’ve reviewed the potential detractors that high turnover can bring to a workplace, but there is a flipside when best practices are implemented. Your employees are your greatest assets, made all the more valuable when they’re happy, engaged, and fully committed to building the ESOP.
Learn how to create and keep an ownership culture that fuels participation, performance, and satisfaction with the tips in our Culture and Communications Guide.
SOURCES
1 Gallup Workplace, U.S. Employee Engagement Sinks to 10-Year Low, January 14, 2025
2 TalkSpirit, Key Employee Engagement Data from Gallup's 2024 Study, January 24, 2025
3 Forbes, From Quiet Vacations to Coffee Badging, the Surprising Reason More People Are Lying at Work, September 12, 2024
4 Apollo Technical, 19 Employee Retention Statistics That Will Surprise You, December 31, 2024
