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