The magic ingredient for creating a successful ESOP

ESOPs, participative management

Employee ownership works. It makes companies, on average, better, faster, and stronger. The typical employee-owner stays with his or her company longer, and many of them come up with the kinds of creative ideas that can push expenses lower than managers thought possible, or that open up new lines of business. Overall, the statistics show that, on average, everyone comes out ahead with employee ownership.

Not surprisingly, some companies do far better than their peers, and some employee-owned businesses do not get any performance benefit at all, or may even do worse. 

What separates the companies that outperform from the ones that underperform?

A successful ESOP requires open communication. The Plan itself creates the conditions for company success, however strong communication and participation make the plan successful long-term in order to experience the benefits everyone expects. 

Employee ownership

Studies have shown that participative ESOPs that are fully and clearly communicated enhance employee engagement (rather than their desire to control the company) leading to high productivity, increased profits, and increased wealth for all. 

If people are going to think and act like owners, they need a basic level of understanding of the plan through which they have that ownership. Here are some of the methods our clients have used to communicate an understanding of their ESOP to their employee-owners.

Hold meetings: Bring everyone together in large groups to announce the ESOP and to cover some of the most common questions about the plan. Do not go into great detail just yet. 

Set up a peer-to-peer training group to further communicate the ESOP in small groups. People can be elected or invited to join a training group and given the time and resources to create a training program. The most successful groups have the active support of the CFO, who can make sure that they have accurate information and can answer all of the group’s questions. These communication groups may even talk with similar committees at other companies so they can share PowerPoint slides, handouts, and agenda items.

Have written materials: Provide information about the ESOP in written format for the people who need to see things in black and white. Employees’ spouses can read them as well.

Let the ESOP sell itself: Most employee ownership plans are good deals for the employees. If they trust the information they receive, rather than suspecting it of being sugar-coating or emphasizing only the positive, they will likely come to their own conclusion that the plan is a good thing. 

Target “just in time” information: People learn best when the learning is digestible and repeated. Young employees who have just joined the company do not need to know all the details about the timeline on which they will be paid out when they leave the company, but they probably do want to know the eligibility rules.

Share stories: Not much is as persuasive to human beings as stories. Talk about people who have retired from your company with substantial value in their ESOP accounts, or, if your plan is newer, use examples from other employee-owned companies. Tell the story of why your company became employee-owned. What were the other options? Why did the company choose employee-ownership over those other options?

Use statistics: Some people prefer to see the numbers, so don’t hesitate to show them research—but only the highlights– on the implications of employee ownership for employee-owners, your company and ultimately the community. Good sources of data, even though most are from American companies, are the National Center for Employee Ownership (NCEO), the ESOP Association (US) and the ESOP Association Canada.


You have an ESOP; now what?

You have an ESOP; now what? ESOPs in Canada

Putting in place a new plan, any plan, is always only the first step; it never runs itself. ESOPs are no different. It is not a set it and forget it tool.
The ESOP transaction is over and has been well received; now the cultural transformation begins. The initial euphoria provides momentum for the work ahead, but how do you harness it into meaningful actions? Employees may be hesitant and uncertain about how to go about this. It is up to the board of directors and/or the leadership individual(s) to channel this new entrepreneurial energy and focus it on the goals of the corporation. The goal for the ESOP team is to instill a participative culture where the new employee-owners start to act and think like owners. The four areas of interaction with its employees are ownership, participation, training, and information. A challenge for companies transitioning to a true ESOP culture is how to communicate it in a meaningful way. There are many types of corporate information to be shared, including strategic, tactical, and investments. However, the one most commonly shared is company financial information. Some of our clients wonder, so be reassured: specific personal information about salaries is never disclosed.
The continuum of sharing of financial information stretches from sharing NO financial information to FULL transparency based on financial statements. In practice what does this look like? One of our clients decided to share quarterly and year-end financial statements with all employee-owners. To do this, they held town hall meetings quarterly, with highlights of company performance, and annually on a more expansive basis. Those attending were advised that the proceedings were to be kept confidential. At the annual meetings, summarized, condensed financial results were shown on the screen as the presenter explained them and answered employees’ questions. No personal identifying information was shown, no printed material was made, and no electronic material was distributed. However it allowed the new employee-owners to participate at a higher level than pre-ESOP and communicated important information in a way that employee-owners could make a meaningful connection to the results of their day to day work.

By Joanna Phillips CHRL, CVB, Vice President and Perry Phillips, CPA, CA, CBV, President


The Case for an ESOP as an Attraction and Retention Tool

The shut-down of the economy has lasted for almost 2 months and businesses are either facing negative impacts from the COVID-19 crisis, along with most Canadian businesses, or are among the minority of businesses experiencing positive impacts.

It’s likely that very difficult business decisions have had to be made to ensure your company’s existence through the crisis. Part of the challenge is having to lay off valued employees, and maintain a positive culture.

Although things are still changing rapidly, business owners are likely considering long-term impacts on the company’s ability to retain their employees, but also to attract top talent once the crisis is behind us. The many reasons why owners turn to an ESOP (Employee Share Ownership Plan) include to exit the business, to establish a succession plan, and especially to attract and retain the top talent in the industry. In some sectors ESOPs are de rigueur and companies cannot be without one. Rather than turning away from investing in your business growth now, this may be exactly the right time to take opportunities to work on your business rather than simply in it.

As your company grows and time goes on, your workforce demographics naturally become younger. It certainly seems that ESOPs appeal greatly to Millennial workers who are looking for something more out of their companies. More studies are confirming this as more millennials enter the workforce. Every business owner knows how much time it can take to put together the “perfect” team. Additionally, employees overall are not staying in one job, or one company, for long compared to in the past. For these reasons, an ESOP can be a very strategic and valuable tool to attract and retain your team which you have invested in and worked hard to establish. Many studies of ESOPs in the US conducted by the NCEO indicate that ESOP companies have a greater resilience for staying in business through economic downturns. While the current crisis is unprecedented, these studies do suggest companies who have a participative ESOP will be more likely to come out of the crisis and emerge in a relatively strong position.

In ESOP Builders’ ESOPs as an Attraction and Retention Tool (November 2019) survey of Canadian ESOP companies 75 percent of respondents indicated their ESOP offers an edge on the competition to attract and retain talent. Therefore, it is likely that taking these steps will set your company up for success against your competition by ensuring you have the team to bounce back incredibly strong once the country experiences a positive shift in the economy.

By Joanna Phillips, CHRL, CVB, Vice President, ESOP Builders Inc.


Shared Resources for the ESOP Community

Our April 2020 survey gathered responses from ESOP companies across Canada to help understand their strategies undertaken to manage operations as an ESOP during the COVIC-19 crisis.  The survey summary is illustrated below. 


The Philosophy that allows ESOPs (Employee Share Ownership Plans) to create incredibly successful companies.

First is the philosophy of personal wealth creation. Employees are motivated by financial gain and ESOPs deliver wealth.

Second is the philosophy of cultural engagement on a personal basis. The Theory of Group Wisdom holds that groups are more successful over individuals due not to the intellect of each person but due to the social interaction of the group. ESOPs create the conditions of group success through a participative culture of engagement.

The combination of personal wealth creation and social interaction create a synergy that few non-ESOP companies can match. The results are ESOP companies with higher productivity, higher profitability, more innovation, and wealthier employees.

By Perry Phillips, President and Founder of ESOP Builders Inc.

Learn more about the 2018 Canadian Employee Ownership Conference in Edmonton, AB – June 4-6.


Employee Share Ownership Plans from the Owner’s Perspective

Most owners of privately-held companies are also the founders.  Why?  At some point in the past, they had a dream and a desire to own their own business.  For many, this required giving up a secure job working for someone else and entering the uncertain and ambiguous realm of an entrepreneur.  Although there was a huge risk, they believed in themselves and their dream, and they took the leap.  For many, this required using their own savings, as well as putting their house and everything they owned on the line as collateral.  This was not an easy decision on their part.

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How Does Neuroscience Affect Employee Engagement?

What is the foundation for effective employee engagement within your ESOP?

Trust. 

Actually, trust is the foundation for every relationship, in any area of your life.  And the only way to create a workplace environment for greater connection, collaboration, innovation, creativity, and success, is by building incrementally higher levels of trust every day.

A basic understanding of neuroscience can allow us to have a simple, understandable dialogue about some of the elements that instill trust, employee engagement, and can lead to an even more successful Employee Share Ownership Plan (ESOP).

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Thinking of a Stock Option Plan for your Company?

When business owners think of offering their employees equity in the company, a stock option plan often comes to mind.

Stock options can be a great tool for owners to engage their employees and attract and keep talented staff. So let’s discuss what stock options are, and in what scenarios they perform best.

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How Does a Management Buyout Relate to an ESOP?

A “management buyout” is a buzz phrase currently used in many business discussions, and for good reason.

The greatest generation of entrepreneurs in Canadian history will retire within the next 10 to 15 years, and these men and women are looking for a way to exit their companies in a way that meets their needs.  Not only do they want to leave with an abundance of retirement funds, they also want to leave a legacy.  They want to ensure the business they built and nurtured will thrive and continue to support the employees and enhance the community.

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B Corps and ESOPs – Best of Both Worlds

A new business certification called B Corp is becoming a leading business innovation, and the model works extremely well with an ESOP. B Corp

B Corp companies have a mission to maximize “stakeholder value.” Stakeholders include employees, community and the environment, in addition to shareholders. Consider it like certification of a LEED building or Fair trade coffee, but for companies.

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