Recognition and Culture to create Engagement

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As a business owner, you know how important it is to attract and retain top talent, so you’ve created an employee share ownership plan; recognition and engagement are important. This can be a great strategy to offer recognition of employees’ efforts in order to increase engagement and retention.

Recognition and Engagement

I recently read an article in Benefits and Pensions Monitor called “How recognition bolsters engagement and shields employees from burnout”, which indicated a few things that align with ESOPs. A report from Workhuman and Gallup, ‘Empowering Workplace Culture Through Recognition’ shows employees who believe that recognition is an important part of their organization’s culture are 3.7 times as likely to be engaged, 3.8 times as likely to feel connected to their culture, and half as likely to experience frequent burnout as those who do not. ESOPs can lead to greater company performance if the company can engage their workforce (recognition and engagement). This comes down to what the report is saying about recognition and culture “the research highlights crucial considerations for leadership in reinforcing strong organizational cultures.” Without building a strong foundation in the culture, programs and initiatives like ESOPs or more traditional recognition plans likely won’t see the success you desire.

According to the article, a very small number (34 percent) of employees say their employer has a recognition program in place, only 13 percentage of which rate it as excellent. What seems to be the key here is aligning recognition program with the values of the organization as employees who perceive that to be the case are 4.9 times as likely believe they know what is expected of them at work. This is also a key element within ESOPs and the plan is more likely to be successful when employees understand why the ESOP was put in place, how it aligns with the company’s values, or how they individually impact company success in their everyday work (again recognition and engagement).

“Employee engagement is critical to the productivity, morale, development, and retention of every organization’s workforce.”

https://www.nceo.org/employee-ownership-data/academic-research

Making the most out of your plan can be challenging

We offer ESOPlus®, which is designed to provide detailed tools and resources to support the ESOP after it has launched. These are designed to improve activities that establish an ownership culture and drive Plan success such as engaging employees and establishing participative practices. It is ideal for Plans that are meant to be ongoing, drive higher engagement from employees, attract new talent, retain team members, and support succession planning.

ESOP companies that have established an ownership culture through participation and engagement are more likely to see positive results like higher productivity, innovation, retention, engagement, and profits.

What’s included in ESOPlus®?

  1. An engagement measurement tool (CORE4ESOP) to help you track and analyze Plan performance and ensure it is meeting its goals.
  2. Templates and guides that are detailed, clear, engaging, and customizable to help integrate your Plan into other company strategies such as attracting and retaining employees.
  3. Workshops along with direct access to an ESOP expert to assist the ESOP Committee and employee shareholders as a whole to truly engage and participate in ownership.
  4. A workbook with templates for you to establish your Plan Committee and communication strategy, and set them up for success long-term.
  5. Administration guides and third party portal access for employee visibility of company ownership
  6. Exclusive access to the most recent and relevant data specifically from small and medium sized private Canadian companies that have an employee ownership program.

All with access to your own ESOP advisor.

Learn more about the benefits of employee share ownership and how ESOPlus® can help you effectively administer your ESOP by visiting the ESOPlus® page or booking a call.

5 questions business owners ask about ESOPs in Canada

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  1. What are the tax benefits to owners and employees? 

    When setting up an ESOP in Canada it is important to know there are no federal laws that govern ESOPs specifically. ESOPs are set up following securities legislation and The Income Tax Act of Canada. However, a major consideration to designing a plan is the tax treatment to employee shareholders. Plans can be designed so that employees of a Canadian Controlled Private Corporation (CCPC) who become shareholders would not be subject to tax when getting the shares and can access capital gains tax treatment when the shares are sold (50% of the gain is taken into income and taxed at an individual’s marginal tax rate, the rest is not taxed). They would potentially also be able to access the Lifetime Capital Gains Exemption or LCGE, which is over $900,000 in 2022. This would mean all gains made on sale would be tax free.

  2. Does it have to be offered to everyone in the company?

    Eligibility can generally be categorized as a broad-based plan or strategic-person plan (a.k.a. key-person plan). The intent of a broad-based plan is to allow the majority of employees to be eligible, however there is a qualifying or waiting period that the employee has to be employed for before becoming eligible. That period can range from 3 months to 5 years, but usually is 1 or 2 years. A strategic person plan is meant only for specified employees or those in a certain position and above. A company with a hierarchical structure may indicate that only those in a manager position, or above are eligible, while smaller companies with less hierarchy, might have the owner identify individuals who they feel contribute most directly to the success of the company. The latter example is less common as it is difficult to communicate eligibility in a fair manner since it is very subject to the owner’s thought process.

  3. How do I make sure it is fair?

    There are many considerations when it comes to perceived fairness. Generally, they all boil down to one thing; communication. Designing a plan in a participatory way has been shown to lead to greater success (the ESOP achieves its goals). A participatory approach just means that you are not only considering the technical requirements (legal and tax) but also the cultural elements. It is important to think about what questions employees are going to have; how does it benefit them as individuals and what are the risks. Defining all the design parameters, including ones that won’t be in a shareholder’s agreement, like eligibility, share allocation, and purchase methodology, clearly with input from potential participants creates the conditions for a successful launch and sustainable ESOP. Many people are unsure and concerned that employees with more money than others will be able to own more of the company. Having a specific and transparent allocation methodology addresses the issue of fairness because it is easy to communicate, and everyone knows what criteria is considered and to what extent. When designing the plan, companies will usually come up with a formula that includes 1 to 4 criteria, such as tenure, position, salary and/or performance. Many companies prefer to make sure that the number of shares an employee owns is related to level of responsibility and impact they have on success of the company, rather than how much money someone has.

  4. Can it be offered to non-employees such as independent contractors?

    Independent contractors can participate in an ESOP. However, according to securities legislation, there is a rule that non-employees are considered investors and if the company has more than 50 non-employee shareholders, it may need to meet additional requirements such as issuing a financial prospectus. Employees are exempt form this rule. Out of ESOP Builders clients, owners who desired to include independent contractors are in the minority.

  5.  How do I get my money out?

    Owners typically want their ESOP to achieve multiple goals. One of those goals is often an exit plan. Owners should, but don’t always, think of 3 things when it comes to planning for their exit. How to get their money out, how the company will run without them (or succession planning), and how to maintain their legacy. An exit doesn’t necessarily mean selling 100% of the company. A recent client of ESOP Builders set it up to achieve his exit and sell 50% of the company (his shares) in 10 years. When one of the goals is to exit, the owner should define their timeframe. The most convenient way to get their money out is to sell their shares directly to the employees rather than issuing new shares and diluting the owner’s ownership. Many companies might start off with a five-year time frame and plan to sell 10 to 20 percent in that timeframe, however consideration needs to be given to what employees can realistically acquire.  This is why defining the exit timeframe is important and having multiple financing methodologies (cash, payroll deduction, loans, use of bonuses, etc.) can help.

By Joanna Phillips, CHRL, CVB, Vice President

A Long Time ESOP Company is Becoming 100% Employee Owned

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Back in 2011 EBI watched with interest as EllisDon, a long-time ESOP company, took the recession in stride as one of Canada’s Top 100 Employers for 2012. In The Globe and Mail article, the firm’s vice-president of leadership and entrepreneurial development shared that in the previous year, 84 percent of employees who were offered shares accepted, an increase from the usual rate of around 70% — because they believed in the ESOP and the company. Our president, Perry Phillips, told the Globe and Mail “the employees who are engaged as owners will now do whatever it takes to get that company through tough times. I’ve seen this constantly. A lot of companies survive downturns and come back up very quickly because they’re still around, thanks to their employees.” 

We can expect the same resilience from ESOP companies today as we all get back to work. Finally.

Now, 9 years later in the midst of a global crisis, Canada’s EllisDon announced recently that a final agreement was executed under which 100 per cent of the company’s equity will be transferred to the company’s employees.

Electrical Business Magazine reported that the majority shareholder, Smith family shareholders, have signed off on an agreement to allow the company to be 100 percent employee-owned over a specified period of time.

The company’s Board of Directors chair, Gerald Slemko, the Smith family, and representation from EllisDon’s shareholder employees were the parties driving this agreement forward. EllisDon will continue to be governed by an independent Board of Directors.

“EllisDon’s share structure and independent governance will ensure that we continue to strive together for complete fairness in equity of ownership across all employees, both present and future,” said CEO Geoff Smith. “Shares will continue to be offered to employees every year and loans will still be offered on an interest-free basis. Shares will always be purchased and sold at book value, ensuring the ability of every employee shareholder to participate fully in the share value created while they are at EllisDon, and then to pass that opportunity on to future employees.”

 

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

 

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The Case for an ESOP as an Attraction and Retention Tool

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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

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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. 

ESOP Owners

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Over 20 years we have had the honour of meeting many business owners who wanted to implement an ESOP for their company.  We have also interviewed thousands of employees of these companies on their desire to become owners.

In our opinion there are two types of owners.  The first we call Founding Owners.  These are people who start a business where none existed before.  They have an idea, a passion, and a skill which they believe will be wanted by clients and customers.  Then they risk everything to start the business.  Many go without salary, raising funds from family and friends and putting up their own assets as collateral for bank funds.  The highest risk for a business is the first 5 years as most start ups fail during this period.  But this risk does not deter Founding Owners.  

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Does Happiness Create Success in Business?

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In a meta analysis of 225 academic studies by Sonja Lyubomirsky, Laura King and Ed Diener (as reported in the 2012 Harvard Business Review) it was shown that happy employees have a higher productivity rate by 31%, increased sales by 37% and are 3 times more innovative and creative.

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Should You Make The Scary Switch To Employee Share Ownership (ESOP)?

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Should you make the scary switch to an ESOP?  Or is it a scary switch?Employee Share Ownership - is it scary?

There is often a perception that inviting employees into the ownership circle can  take away value, rather than adding value to a company.  When designed well, this is not true at all. In fact, there are many huge advantages for the owner, the company and the employee team.

Tema Frank of Frank Reactions interviewed Employee Ownership Specialist, Dan Ohler, from Edmonton, AB to explore these questions.

We invite you to grab a cup of coffee, put on your headset, and enjoy the interview.

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Employee Ownership. Is It Right For You?

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In our daily conversations with business owners and senior management, we receive lots of questions about employee ownership of business through an ESOP.  Most fit into two categories characterized as:

  1. How do we implement an ESOP?
  2. We’ve got an ESOP. How do we keep it fresh and alive?

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Is it the Right Time for Canadian Employee Ownership?

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It is no secret that our Canadian economy is changing. How does this relate to Canadian employee ownership?  A great question.

In Alberta, as in many other places across Canada, thousands of oil-related jobs have been lost. Downtown Calgary was almost impossible to drive through a year ago, yet now, rush hour is quite manageable – and it’s not because people are riding bikes.

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