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October Is Employee Ownership Month

October 7, 2020

In today’s business environment, companies across the country have had to identify new paths towards success and adapt to meet unexpected challenges and work situations. These entrepreneurial steps are not new to employee-owned companies, where high-levels of engagement, transparency, and idea sharing are common.

October is Employee Ownership Month, a time to celebrate the ingenuity of employee owners as they work together to build a stronger business. Even in the midst of the pandemic, the power of an employee ownership culture can help transcend ongoing business challenges and keep companies moving forward.

Ever since the late 1980s, companies with an employee stock ownership plan (ESOP) have marked this month-long recognition of their special status by conducting outreach and education, sharing their experience as an employee-owned organization, and hosting a variety of fun events. While Employee Ownership Month celebrations may look a little different this year, one thing is certain – it’s comforting to be connected to and part of an employee-owned culture.

Millions of employees and business leaders throughout the nation have long agreed that employee ownership has measurable benefits.

  • Seventy-two percent of Americans in a 2019 survey said they’d like to work for a company owned by its employees, compared to 19% who preferred an investor-owned workplace and 9% who wanted a job in government at some level.
  • Workers exhibit more than a theoretical commitment to employers that provide ownership opportunities. They prove it by staying with the company longer; the turnover rate at employee-owned companies is less than half that of traditionally owned businesses.

Employers can also find a lot to love about ESOP arrangements. Besides their vastly improved turnover rate, employee-owned companies have a leg up on the competition in the race to acquire top talent when they do look to hire; more than 6 in 10 workers (61%) reported they’d opt for a job offer that came with employee ownership options over a similar position without that benefit.

Employee-owned businesses tend to show higher per-employee sales, their revenue increases consistently, and so does their stock price. Compared to the S&P 500 total return index, ESOP S corps generated a 62% higher total return per participant over the years spanning 2002 to 2012, which included the Great Recession. What’s more, ESOP companies have a higher chance of long-term survival than do businesses that follow a traditional shareholder model of ownership.

These facts and more support employers’ choice to offer employees a share in company ownership, but what makes the practice such a universally preferred model for workers? Is it just the concept that pleases or are there quantifiable benefits that come with being an employee-owner? Here again it’s easy to find solid data in support of workers’ preference for ESOP-style entity structures:

  • Better job security – Employee-owners face just one-sixth the risk of layoff they would at a traditional company.
  • Increased access to retirement plans – Many companies don’t offer a retirement plan at all, but ninety-seven percent of ESOP Association members reported offering employees access to a secondary retirement plan, such as a 401(k) or pension, in addition to their ESOP benefits – far higher than the average rate in private industry overall.
  • More training opportunities – In 2018, firms with an ESOP were significantly more likely to offer company-sponsored training than their non-employee owned counterparts. ESOP companies also excel at open book management and other practices that help employees learn the business to better understand how their role impacts the bottom line.
  • Increased productivity – The ESOP Association revealed 28 percent found that implementing an ESOP resulted in “strongly improved motivation and productivity.” Another 55 percent of respondents said the ESOP resulted in “somewhat improved” motivation, with respective rates of 70% versus 49%.
  • More retirement savings – At every age and income level, the amount of money employee-owners have stashed away in ESOP accounts exceeds by a wide margin the average median retirement savings for workers with other types of retirement plans.

The general public, too, seems sold on employee share ownership. Thirty-eight percent of survey respondents said they’re more likely to give their business to an employee-owned company while only 8% indicated the opposite.

Even politicians, a group that is typically divided along party lines, manage to come together to support employee-owned businesses. Republican and Democratic lawmakers worked in a bipartisan fashion to pass the Main Street Employee Ownership Act of 2018 which changes a number of Small Business Administration regulations with the goal of making it easier for business owners to transfer majority ownership to an ESOP or a worker co-op.

The numbers paint an impressive picture of ESOP benefits for employees and management alike, but for the Katz, Sapper & Miller team, employee ownership is personal. That’s because the firm created its own ESOP in 2001 and we’ve never looked back. Is it a perfect solution to every business challenge? Probably not. Like privately held and publicly traded ownership models, being an ESOP firm comes with both advantages and drawbacks. However, our experience with employee ownership has consistently delivered a satisfying range of rewards that align with the success we’ve observed at other companies during our years serving ESOP clients.

As an employee-owned firm we are committed to providing business and advisory services that include tax strategy, accounting, valuation and more for other ESOP companies. And for those who haven’t yet made the move? We’re happy to share our journey as an ESOP firm and answer your questions about the potential challenges you might face, along with the benefits you can expect from employee ownership. Feel free to contact our ESOP Services Group to learn more about the issues and trends we’re encountering in the ESOP community, as well as insights we’ve gleaned first-hand. Happy Employee Ownership Month!

Andy Manchir Partner, Business Valuation & ESOP Services

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