After spending decades developing and building a business, the question of legacy and inheritance becomes relevant and personal to many people. Nowadays, it’s becoming less frequent for blood relatives and young heirs to willingly take on the mantle of the family business. This puts aging business owners in a tough spot as they try to figure out to whom to pass control of their beloved companies.
Transitioning into an employee-owned company solves this issue by putting the business in the hands of the people who have helped keep it running over the years: the folks who work there.
Employee Stock Ownership Plans (ESOPs) are rising in popularity across various fields and industries, serving as an attractive alternative to potentially destabilizing mergers and acquisitions. ESOPs provide owners wishing to retire with a dignified and straightforward exit strategy, and they help maintain stability for the company’s loyal and long-term employees.
But that’s not all. Below are three key ways that becoming an ESOP company benefits both owners and employees.
1. Employee Retention
Owning a piece of the company gives employees more input and greater control over their jobs and work environment, which in turn creates a workplace where people want to stay. Surveys have shown lower turnover among ESOPs than among companies that are not employee-owned. Being part of a stable, high-retention workplace is known to increase employee happiness and productivity, leading to a more positive work environment and a more successful business.
2. Better Retirement Plans
If you work for an employee-owned company, you’re likely to have a significantly larger baseline annual contribution made to your retirement account than at a conventionally-owned company. This is an especially attractive benefit because it means workers don’t have to contribute as much of their personal funds to their IRAs and other post-work plans to get where they want to be.
3. Stable Governance
It’s a well-known phenomenon that mergers and acquisitions are often accompanied by mass exits of executives and other workers from the acquired company. Studies have found that as many as a quarter of all executives will leave an acquired company within the first year. This is no surprise, considering the cutting of paychecks and uncomfortable reorganization that often accompanies such acquisitions.
At an employee-owned company, there’s no risk of being sold to a private equity group or being shuttered when the owner retires. ESOPs assure stability and continuity in the ownership and operation of the business, giving employees the assurance that their jobs and livelihoods won’t be jeopardized by a change in leadership down the road.
The Bottom Line
Being an ESOP company carries many benefits for both owners and employees. It ensures the company’s longevity and stability in the long run, and it provides employees with an enhanced degree of satisfaction, financial security, and workplace pride in the short term. While it may not be traditional, it’s definitely a crucial option for business owners to consider.
T.R. Arnold & Associates is proud to be an Employee Owned Company since 1997.