ESOP Town Halls go virtual

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At ESOP Builders, we know there is value in doing things face to face, however certain circumstances require conducting business virtually. And why not conduct more and more business virtually? It’s almost more challenging to not conduct work virtually since there is motivation to do so in the form of COVID restricting in person contact, and ease or convenience to do it in the form of user-friendly technology.

As our previous ESOP clients will know, a key step in our implementation process is to have a Town Hall with employees to describe and explain the program, as well as educate and answer questions. Recently, however clients in the middle of the implementation process in March 2020 were suddenly thrown a completely unexpected curve-ball. One client moved forward with their ESOP, although delayed, and conducted our first ever virtual Town Hall. This client had moved all company meetings to virtual and said that overall it went well, but they found the need to significantly reduce meeting durations because people just can’t pay attention on a screen for that long. We worked with them to cut down the content from a 1-2 hour session to 30 minutes (including time for questions). However, the management team also did informal communication to ensure everyone understood the program, pushing to get everyone to ask questions, which was key when having such a short minute meeting for something that does require more. Also a key part of the Town Hall was having a detailed and straight forward employee info package for employees to review and contemplate after hearing about the plan during the Town Hall.  This is something we always provide, but it is particularly useful when dealing in a virtual environment.

This particular client experienced a 60% and 70% participation rate (they implemented ESOPs in two different companies) which is excellent given the norm is 60-75%. Under the circumstances we revised our expectations to around 50% participation, therefore we are very pleased with the result and commend the company for making it happen!

Fortunately, technology made it easy to adapt and work through a different way of doing things.

By Joanna Phillips, CHRL, CVB, Vice President

An economic crisis could be the right time to start an ESOP

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While many businesses deferred thinking about implementing a shared ownership plan back in April, now may just be the right time to start taking action. Businesses have adapted and started to see the beginning signs of operations picking up again.

There are around 7,000 ESOPs in the US according to Mary Joseph’s article in Forbes (2020). A Deloitte (2018) found that about three quarters of publicly traded companies offer ESPPs (Employee Stock Purchase Plan). However, we want to see Canadian plans continue to rise. A plan can be set up many ways driven by the goals of the owner, the company, and the participants.

Joseph outlined some reasons why an ESOP should be implemented. In this blog we will use her concepts to similarly highlight some reasons but from a Canadian perspective.

  1. Company Performance – The most compelling purpose for a time like this is that ESOPs outperform non esop companies during tough times. This is seen in studies comparing companies’ sales, profits, hiring activities, etc. For example, the researchers at the Institute for the Study of Employee Ownership and Profit Sharing at Rutgers University found that ESOP companies grew sales during 2008-09 11.1% while non-employee-owned companies grew by just 0.61%.
  2. An Ownership Mindset – Employees are also owners and they have a different mindset toward their company and how it works compared to non-employee owners. Think about a renter of a building versus an owner. Employees think about things like their paycheck, Fridays, time off, or the “me mentality”. Owners think of things like sales, profit, expenses, clients, company projects, cash flow, etc. or the “us mentality”. Employee owners understand the bigger picture and are likely to find ways to boost sales and/or cut costs more so than if they were not an owner. When the company does well, everyone individually does well too. As a customer would you prefer to deal with the owner or someone who doesn’t have that level of stake in the company’s success? Usually the owner will be the one giving the best service. When all your employees are also owners client satisfaction soars. Research from the NCEO shows that employees at ESOP companies are less likely to be laid off. Recent research from Rutgers University (2018) also indicates that retirement accounts of employees at ESOP companies are significantly greater than those at non-ESOP companies.
  3. Successful Exit for the Founding Owner – It makes sense for the founding owner because sale to a third party is only successful about 50% of the time. Selling to your employees on the other hand has an 80% success rate. Why is this you may wonder? For a small or medium sized private Canadian company, third party offers may be hard to come by, and when they do they may not meet the expectations of the owner in terms of what the company is worth and what will happen to the company once the deal is done. Many of our clients want to share the success that their employees have helped create and continue the legacy of their business. The employees are already invested by way of the time and effort they have committed over the years, they are more likely to want to see the business succeed. Not to mention they already know their jobs, know how the company works, and know the clients. Additionally, the owner doesn’t have to share extensive financial and confidential information with a third party. The fact that it is also a lucrative and effective way for an owner to exit is an added bonus.
  4. Flexible Transition – Control can still rest with the founding owner until such time that they are ready to fully transition controlling ownership. Employee owners are not typically provided a seat on the board until they hold a significant ownership percentage. See our last blog post which talks about participation and what that can look like.

Overall, it is a win for all, the founding owners, the employees, and the economy. An added bonus is that it can support democracy by strengthening the wealth of the middle class without government intervention.

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

You have an ESOP; now what?

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

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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

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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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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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The Conversation Canada is Missing On Minimum Wage

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Recently, B.C., Alberta and Ontario have committed to raising the minimum wage and predictably in all cases, these wage hikes are met with scorn and praise from both sides. While a minimum wage is an essential factor to protect workers and create a minimum standard of living, there is a better solution that Canada should be exploring to help more people build wealth and ensure a competitive economy.

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