How Is Having An ESOP Helping Businesses During A Pandemic?

With the world of business reeling during the COVID-19 pandemic, companies are looking for ways to keep their businesses stable and thriving despite the economic uncertainty.

As business owners look around, they might notice that there are some businesses that, despite all odds, have continued to grow and become even stronger. 

How do they do it? Did they cut certain benefits? Did they reduce expenses by a ridiculous amount? Did they implement some super-secret business practice that not many people know about?

Well actually, that last one is kind of right. 

During the COVID-19 pandemic, businesses that are employee-owned, also known as Employee Stock Ownership Programs (or ESOPs) have fared far better than traditional business models. 

ESOPs have been around for decades, but they are only just now becoming more and more popular as savvy business owners have realized the incredible amount of benefits that come with employee ownership. 

A recent study was done to see just how much better ESOP businesses did during the economic instability that came with the pandemic. This study was done by Rutgers University and SSRS and was funded by the Employer Ownership Foundation.

The first interesting piece of information that came from this study was the fact that ESOP businesses were over 3x more likely to have retained employees during the pandemic. What’s even more incredible, is that that rate remained the same even if businesses got access to government relief in the form of PPP loans this year. Having to lay off employees was one of the hardest decisions that business owners had to make during the pandemic, and with ESOPs, it seems that those conversations have to be had much less often. That’s a great thing!

Even if employees weren’t being laid off, many businesses still had to cut hours or reduce salaries to sustain their companies. However, ESOP businesses were “significantly” less likely to do that and were able to keep their employees whole during the entire length of the pandemic thus far. 

Finally, not only were ESOP businesses more likely to keep their employees working and financially stable during the pandemic, but they were also more likely to keep their employees safe by allowing them to work from home sooner and for those that couldn’t, providing Personal Protective Equipment (PPE) at a much higher rate. 

How Does an ESOP Accomplish all these things?

To answer the question of how ESOPs were able to keep these companies so stable during a global pandemic, we first must explain what an ESOP is! 

ESOP stands for Employee Stock Ownership Program. It is more commonly referred to as an “employee-owned” business as the employees earn stock ownership in the company over the time that they work for an organization.

The reason why an ESOP organization is so successful during a global pandemic is because this structure allows employees to work together more efficiently to find innovative solutions allowing you, the owner, or your successor to make decisions that are for the greater good of the entire ownership group (the employees). 

When employees share in the gains and losses of the business, they become more motivated to find solutions to problems and come up with new ways to be productive even in the most trying of times. This, in addition to many financial benefits such as certain tax advantages for the business, make it a much more stable ship in the turbulent waters of a pandemic. 

While we can hope there is not another pandemic of this measure in our lifetime, we will always have economic changes that will challenge our businesses. By transitioning to an ESOP, you can set your business up with better advantages to navigate through these storms in the future.

Want to learn more? Contact Excel Legacy Group today!