ESOPs Are All About Employees (Benefits, That Is)

Employee Benefit Plan, Part 2

“If everyone is moving forward together, then success takes care of itself.” – Henry Ford

There’s a radio station that’s been around for centuries. Longer, even. Its origin dates to the dawn of human history – well before Guglielmo Marconi invented radio as we know it.

Everyone knows this station, even if they’ve never consciously listened. Its soundtrack mirrors human nature.

Recognize these call letters? WIFM.

They signify What’s In it For Me – the question that every person subtly asks when confronted with something new in their lives. It’s a natural response. The answer decides whether they accept the new development, or dig in their heels and fight it.

If WIFM had a playlist, songs about ESOPs would likely be in the rotation.

Our last post examined the question, often asked by observers, whether employee stock ownership plans (ESOP) are a form of employee benefits. The question often comes up right after “What is an ESOP?”

The Internal Revenue Service doesn’t mention employee benefits in its ESOP rules. Yet, while not defined legally as an “employee benefit plan,” ESOP plans offer benefits for employees that make them welcome arrivals in any organization.

We’ve previously discussed the innate value to employees of being made part-owners in their workplace. Pride is certainly a large, albeit mostly unmeasurable, outcome.

Other benefits are more tangible than others. Who can argue, though, with their value?

Employee Benefits - image courtesy of U.S. Chamber of Commerce
Image courtesy of U.S. Chamber of Commerce.

Retirement plan

Everyone knows about 401(k) plans. An ESOP, similarly, is a form of qualified benefit plan. No contributions coming out of employees’ paychecks, though. The employer makes plan contributions. Employees accumulate the investment on a defined schedule. Pretty good deal, huh?

Job commitment

Employees become more engaged when they see a direct link between job performance and company success … which, as owners, is THEIR success! ESOPs can be a tremendous driver of employee productivity, as we’ve written about. With “skin in the game,” workers naturally feel a greater sense of commitment and loyalty to an employer. Not too hard to grasp, right?

Employment security

Mergers and acquisitions are feared by employees due to potential job cuts. Not so with an ESOP. After an owner(s) sells some or all of their company to an ESOP, the organization is largely managed and run as before. This is another reason why ESOPs strengthen employee loyalty and commitment. If they know you have their back, they’ll have yours, too.

For these reasons and more, ESOPs serve as an important employee retention tool. Their structure can offer tax, cash flow and financing benefits to companies, too.

Why haven’t more organizations embraced ESOPs? Probably because they aren’t so easy to understand. Contact Excel Legacy Group and we’ll be glad to explain … in a language you’ll follow.

Things really do work better when everyone pulls together. As far as which radio station is playing in the background … the answer should be obvious by now.