Checklist: Is an ESOP a Good Fit For Your Company? – Part 1

Our experience shows there are key attributes that suggest a company is a good candidate for an employee share ownership plan (ESOP). Read through these questions to learn if an ESOP is a good fit for your company:

Owners:

Do you have a desire or passion to spread ownership among the employees?     YES     NO

Owners generally have a deep commitment to engaging their employees in ownership.  This desire has usually been in the background for many years but the owner could not find the needed expertise to help design and implement and ESOP.

If you have more than one owner currently, do all the owners agree that an ESOP is needed for the company?     YES     NO

In order for an ESOP to succeed, it’s really important that the ownership group be aligned on this issue.  Employees need to trust that the ESOP will be fair and therefore the ownership group has to support it 120%.  If not, the employees will not buy in.  The owners will have different reasons and goals for the ESOP, but that’s a design issue and does not detract from the desire to move forward.

Checklist

Do you disclose financial information on a regular basis to either key non-shareholder employees or more broad based groups?     YES     NO

Each owner has a level of comfort or discomfort on financial disclosure.  Also, levels of disclosure can vary significantly from company to company.  In no event are compensation levels disclosed for anyone.  ESOPs can be designed to any level of disclosure comfort by the owners.  A Yes answer makes you more certain to be an ESOP candidate.  However, a No answer does not preclude you from exploring levels of disclosure that would be acceptable.  Some plans can be built with no disclosure at all until the owners are more comfortable with the concept.

Have the owners discussed ESOPs with employees in the past or currently?      YES     NO

Frequently owners may have mentioned this either to key employees or a broader base but never moved it forward.  The longer this is unresolved, the less trust is given by employees to the owner and the ESOP.  We know of companies that have been promising an ESOP for 3 to 5 years.  The reason they do not move forward is lack of expertise on how to do it.  We offer that expertise and comfort to move it to completion.

Check back soon for Part 2 in this series. You can learn more about ESOPs at the 2016 Canadian Employee Ownership Conference.

By Perry Phillips

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