4 Ways Owners Benefit from Employee Ownership
ESOP & EOT
Joanna is a Certified Human Resources Leader and Certified Value Builder. She holds an honours degree in business management specializing in human resources from Western University. Since graduating, Joanna has been a trusted guide and adviser to business leaders. She has worked in many industries and is currently Vice President of ESOP Builders and a Director of Employee Ownership Canada.
ESOP stands for Employee Share Ownership Plans, which can also include EOTs or Employee Ownership Trusts, a new structure under the Income Tax Act of Canada. They help the businesses owner transfer shares to employees. ESOP Builders designs and implements ESOPs or EOTs for SMEs across Canada in multiple industries. With ESOPs, employees can own from one per cent to 100 per cent of the company. In an EOT structure, employees own 30% or more of the company via the trust and the selling owner(s) must sell control of the company to it.
Last year, one in five workers quit in the previous 12 months. Some were calling it the Great Resignation. A 2022 report from Predictive Success says 75 per cent of executives say the Great Resignation has hurt their financial stability. Businesses are losing great people. The best employees are walking out the door to pursue different, more rewarding lifestyles that don’t involve lengthy commutes or office politics.
A growing list of Canadian businesses is finding that employees are more engaged when they own a share of the company. Employees who become owners are committed to the business. They want to succeed just as much as you do. You benefit from improved retention, more motivated employees and a greater ability to attract good people.
01: Retention. Keeping great people
Outside Kitchener, an engineering consulting firm helps businesses waste less energy and water and move towards net zero. The Founder and owner says it is very difficult to find qualified people.
Most engineering companies specialize. However at this Company, staff need to understand every area: water, electricity, gas and wastewater. In addition, the company’s engineers must develop the interpersonal and communication skills necessary to bring a broad range of stakeholders onboard with implementing the proposed changes.
“It takes us a long time to train people,” says the Founder, “and that is why you want to keep them.”
The business itself is small with just 18 people however it works with many large companies such as Maple Leaf Foods, Campbell Soup and Tim Hortons. With so few employees, retention becomes extremely important.
The pandemic was particularly difficult, because, to do its work, the employees needed to be on site. With lockdown, that wasn’t possible. A slowdown meant possible layoffs. That’s when Bruce decided to turn the company he had created into an ESOP. He launched a five-year plan, selling shares every year until Enviro-Stewards becomes half employee-owned.
Starting the ESOP during the pandemic allowed employees to purchase their initial shares at a depressed value for the 22-year old company and ride the curve back up as growth resumes.
Buying shares in the Company is a way to make a commitment to the long-term viability of the business. In the first year, a member of the leadership team, bought the maximum number of shares. “For us, it’s a way to invest in the company, because of the good that it does. And the potential we see for it to continue to do good. It came down to a strong belief in the mission of the company. The work we do is very unique and something that industry needs. Environment needs. Society needs.”
On the other side of the country in Cranbrook, BC, a branding and signage business is also employee-owned. In 2015, the owners decided to retire. After about a year of planning, they began selling shares, starting with 15 per cent and then another five per cent each year.
A member of the senior leadership team, who helped manage the move to the new business model said the following “Instead of jumping ship, thinking the grass is greener somewhere else, and I’ll make an extra 50 cents an hour, employees start thinking long term,” he says. “It’s more than just a job. More than a paycheque. They have investments that will grow, as they help the business grow.”
02: Motivation. Engaging employees
Ross Video is a global company based in Ottawa. It creates broadcast news and sports video for customers, including CBC, CTV, CBC, CBS, ABC, NBC, Fox, BBC, France Television and the National Television of Kazakhstan. Ross Video has 1,250 employees. More than 400 own 18 per cent of the company.
Every year, Ross Video holds a mini market where employees buy and sell shares. “In the last mini market,” says CEO David Ross, “$1.7 million worth of shares changed hands between employees. That’s a lot of shares. That’s not the stock market. That’s inside the company.”
If you take part in the hiring process, you know that compensation matters. And it’s not just the salary. Employees care about everything from dental plans to pensions and job satisfaction.
Taking home a share of the profits creates a fairer workplace and greater job satisfaction. “I wanted to be able to say, ‘The company just made a millions of profit and we grew by 30 per cent this year,’ and not have people say, ‘Well, that’s great for Dave. Congratulations. You are now richer.’ I wanted people cheering along with me, because they are owners and they are winning the same way people in the C suite are.”
03: Attraction. Finding great people
When your job ad states you’re employee owned, you attract people who want to contribute and help shape the business long term. You’re showing you care about people–so much so you’re ready to share the wealth.
In 2019, an Ontario landscaping company, began reshaping itself into an ESOP. After a year of planning, the company was ready to offer shares. Employees who had worked 1,500 hours were eligible. Twenty-five qualified. Twelve bought in. Since then, the company has grown steadily, as has the number of shareholders.
The Operations manager says the ESOP acts as a recruiting tool. “We include this in our job postings and say we’re an ESOP. I have been pleasantly surprised by how many people reply and say, ‘I am really interested in becoming a shareholder.’ ”
Ross Video is constantly growing, and David has found that being an ESOP also helps with acquisitions. “We’ve done quite a few deals where people have taken millions of dollars worth of stock, all the way up to 100 per cent. One company took all Ross stock, basically a stock swap, for Ross Video.”
04: Economic growth.
Employee ownership can improve engagement and productivity. It could also ramp up the Canadian economy, during a time when the workforce is changing exponentially.
ESOPs or Employee Share Ownership Plans officially originated in the United States more than 30 years ago. The growing gap between rich and poor was alarming many US leaders, and ESOPs became a way to transfer wealth to employees and create financial stability.
In the US, the IRS created rules and regulations to manage the transfer of ownership to employees. Until recently Canada did not have any special tax instruments or legislation for ESOPs. In 2024, the federal government introduced the concept of Employee Ownership Trusts which allows employees to become beneficiaries of the Trust and allows Owners to claim a large capital gain exemption when they sell a controlling stake to it. Several provinces have ESOP legislation, which gives tax breaks. However, they are limited and complex and therefore not well used.
The UK has employee ownership trusts (EOTs). The government brought in EOTs in 2014 and since then has seen rapid growth in employee ownership. The accounting firm Price Bailey recently analyzed HM Revenue data and found that 312 UK businesses had created EOTs, nearly double the 181 formed in 2020-21 and substantially more than the 50 created in 2018-19. Canadian companies are also moving ahead, using services like ESOP Builders to structure plans that give employees a bigger stake in the business.
While employee-ownership creates economic momentum, it builds community. Profits stay with employees who invest and spend in the neighbourhoods they live in. This is especially true for small and medium-sized companies that tend to be very community oriented and want to expand locally rather than move operations.
Thousands of Canadian companies are employee-owned. I have had the privilege of working with many of them. I have witnessed first hand how engaged employees become when they’re owners, working to enrich the entire team. They do better work, knowing their efforts will increase share value. They embody the vision and mission, because it’s a reflection of them and truly describes their purpose.