A majority of the companies we work with share that one of the major goals for implementing an employee share ownership plan (ESOP) is to attract and retain key people. While many owners know intrinsically that ownership will help with this important issue, their assumptions are backed by research.
A recent survey by Rutgers Employee Ownership Fellows Program shows companies advertising as employee-owned should have much more success in recruiting higher-skilled employees.
Undergraduates, who were asked to self-report their SAT or ACT scores, were shown two otherwise identical recruitment ads, one that explicitly stated the firm was employee-owned and one that did not. The results show that higher-scoring students were significantly more likely to prefer the employee-owned company.
A second approach in the study looked at a sample of 147 working professionals recruited through Amazon’s Mechanical Turk, a crowdsourcing Internet marketplace that enables individuals and businesses to connect to do jobs computers have a hard time doing. The average age of respondents was 36, with 14.8 years of work experience.
Twenty-one per cent had experience working for a firm with an employee ownership plan. After completing consent forms, participants were randomly assigned to respond to descriptions of employee-owned firms or non-employee-owned firms.
The study found dramatic differences in how participants perceived such factors as empowerment, engagement, job turnover, and other dimensions. On a seven-point scale, employee ownership companies typically rated around a six, and other companies half that or less.
Retention is also improved with an ESOP. Publix, a retail grocery store and one of the largest private companies in the U.S, offers an ESOP to all employees who have worked for the company for one year.
In an industry notorious for high turnover, on average a 100 per cent, Publix has a turnover rate of 3.2 per cent. Adding to this, Publix is one, if not the most, profitable grocery chains in the U.S.
While ESOPs are a proven model for finding and keeping talent, our experience has taught us that it’s critical to engage the key individuals who will be taking part in the ESOP in the initial design of the plan.
That’s because in order for the ESOP to be successful it needs to reflect the realities of the people who will be participating.
When we work with companies to design and implement an ESOP we interview typically 5-7 key individuals in the organization. We want to learn if ownership is something they want, what they could afford to invest and how much financial information they receive now and are comfortable interpreting.
When this step is missed, a well-intentioned plan can go awry. We’ve heard stories of companies implementing a stock option plan with little consideration to different funding strategies only to find that the amount the employees needed to come up with was too difficult. As a result, very few people exercised their shares, and the ESOP didn’t retain the company’s key people.
By including key people in the design of the plan the owner starts a process of engagement that not only affects the ESOP design but will continue once the ESOP is launched. Employees will fully understand the plan (as they helped design it) and as a result be ready and eager to focus on the growth of the business.
In many companies that we’ve helped implement ESOPs, productivity improvements and retention and attraction rates have improved significantly.
If you’d like more examples of how an ESOP can help you attract and retain your key people, check out our case studies.
By Camille Jensen