Pay Up? ESOP’s Do, Especially in Hard Times

As the tidal waves of a pandemic-driven economic storm receded, the labor supply suddenly contracted faster than a dry sponge.

Whether by retirement or just dropping out, the number of available workers cratered. Thousands of people gone, almost overnight. Employees found themselves in the driver’s seat. It’s a seller’s market in the employment world.

Meanwhile, untold numbers of companies have tens, hundreds, or thousands of open positions. For some, labor problems threaten their very survival. What does the future hold?

In all likelihood, higher wages across the board. A tremendous number of industries have already seen their pay scales increase. The trend is unlikely to slow anytime soon.

One type of business hasn’t experienced a wholesale pay increase – only because, unlike most other organizations, they were far less likely to reduce wages in the first place during the pandemic. The answer? Companies with employee stock ownership plans (ESOPs).

W-4 Employee's Withholding Certification

ESOPs During COVID-19

Our last post detailed how, when COVID-19 swept across the U.S., ESOP organizations had far fewer layoffs than non-employee-owned businesses. In fact, ESOPs laid off staff at one-fourth the rate of other companies.

Workers at ESOPs fared far better in terms of wages, as well. In fact, just over a quarter (26.9%) of ESOP companies cut any employee pay during the pandemic, according to a 2020 study conducted by Rutgers University and the SSRS survey firm.

By comparison, 57.3% of other firms reduced wages, according to the research, titled “Employee-Owned Firms in the COVID-19 Pandemic.” Their employees lost pay at more than twice the percentage as ESOP organizations!

“Majority ESOP firms maintained standard hours and salaries at significantly higher rates than other firms,” the study states.

Would touting that an organization didn’t cut pay during the pandemic be a strong lure for new talent? Especially at a time when so many employees experienced pay cuts in the past two years?

The wounds of those lost wages remain fresh. Their psychological impact, and its effect on how workers view prospective employers, could last far longer. Chances are, they’ll look favorably on a company structure that kept wages stable, even as payrolls plummeted all around.

What is an ESOP? The textbook definition is a retirement plan that buys shares of a company and holds them for employees who participate in the plan. Essentially, the employees become owners of the organization.

The other answer – one unlikely to be found in an economics textbook or legal tome – is a company structure that values workers on an unprecedented scale. Empirical data supports it. How valuable could this be in winning the competition for talent?

Our next post will consider another aspect of the Rutgers study. If you’re already understanding how an ESOP can help your organization survive the labor shortage, contact Excel Legacy Group. You’ll discover that ESOPs are about both employers and employees!