According to the National Center for Employee Ownership, there are nearly 6,300 ESOP companies, and an average of 250 more join the ranks each year. Maybe your organization has made the decision to become an ESOP, or maybe you’re already an ESOP and hiring new employees.
Either way, you’re met with the job of onboarding new ESOP participants — a task that can be both challenging and rewarding. How do you convey ESOP plan basics in a way that’s thorough yet easy to understand? How do you paint a picture of an ESOP company culture that engages participants in the excitement and responsibility of employee ownership?
These are in-depth questions that can lead to information overload. Educating new participants on how an ESOP works and what employee ownership means requires a mindful approach to details — specifically, what and how much to share.
What’s in it for them: ESOP plan basics for new participants
An ESOP plan document is complex. However, getting too granular, even with the best intentions, may overwhelm new participants.
Instead, focus initial information-sharing around general plan structure and terms that are regularly used. Best practices include:
- Explain how an ESOP works, highlighting how the retirement plan invests in the company’s stock and how shares are bought and held in a trust on behalf of plan participants.
- Define plan provisions, such as participation, eligibility, and vested as stated in your plan document.
- Expand on vesting to include the principles of a vesting schedule, and how participants gain ESOP shares incrementally over time with the company.
- Describe valuation, focusing on how an annual valuation analysis conducted by an independent appraiser serves as the basis for transactional stock (share) prices.
- Touch on distribution options including how to qualify for a distribution and the timing of payment.
These types of details help new ESOP participants understand how the plan benefits them. And keep in mind, cultivating commitment to the ESOP is a long-term strategy. Employers must be willing to continue the conversation with:
- Clear and accessible communication through employee handbooks, intranet portals, meetings, annual reports — any of these channels helps participants find information
- Establishing an ESOP culture and communications committee that’s tasked with planning educational and fun events throughout the year (and especially in October, Employee Ownership Month)
- Training that may include focus areas of interest to participants. Formats might be lunch-and-learn workshops, webinars, or listening sessions
- Feedback opportunities to make it easy for participants to ask questions, provide input, or voice concerns about the ESOP. Whatever form this information gathering might take — suggestions boxes, emails, online surveys — it’s important to respond timely and honestly
Cultivating a culture of ownership
When rolled out and supported in ways that help employees connect the dots between their contributions, company performance, and profitability, ESOPs cultivate an ownership mentality.
Instead of being passive workers, participants think like owners and act like a team when pursuing goals. Every achievement is a collective “win” because it builds a culture wherein shared responsibility also improves:
- Employee engagement, job satisfaction, and retention
- Individual accountability and motivation
- Cooperation and communication across departments
- How employees view themselves as valued, trusted, and heard
A culture of ownership isn’t theoretical. A 2022 Rutgers University study compiled data that illustrate the average difference between post-ESOP and pre-ESOP performance. The results of implementing an ESOP plan are eye opening:
- 2.4% higher annual sales growth
- 2.3% higher employment growth
- 2.3% higher annual sales growth (per employee)
- 4.4% higher employee productivity
Extrapolated over a 10-year period, the researchers concluded that an ESOP company reaching these percentages would likely be one-third larger than a comparable non-ESOP company. In turn, strong performance and consistent growth underpin positive ESOP retirement outcomes — so employers and employees all stand to gain.
An ESOP plan is dynamic. When employees understand they largely control what growth and the future looks like for themselves and the company, a culture emerges that encourages long tenures, happier employees, and greater opportunities for company success.
Learn how to leverage the full potential of your ESOP with our guide, Build Your Ownership Culture & Maximize the Business Benefit of Your ESOP. Download your copy now.
