When the Chips Were Down, ESOPs Took Care of Their Employees

“When employees are happy, they are your very best ambassadors.” – James Sinegal

The labor crunch is hitting industries in every market segment. A variety of forces have coagulated to create a worker shortage not seen since, well, pretty much forever.

Employee retention has taken on epic importance. Lose workers, and their replacements could be really hard to find.

Attracting workers? Competition is fierce. Better have your ducks in a row.

So what’s that quacking sound? Could it be a unique means to attract and retain quality labor?

Yes indeed. Very recent history – just a year ago – provides ample evidence that employee stock ownership plans (ESOPs) strongly benefit workers in terms of pay, safety and job security. Might this be a valuable tool to draw and keep employees?

A 2020 study conducted by Rutgers University and the SSRS survey firm compared the performance of ESOP and non-ESOP companies during the pandemic. Essentially, during a time of severe economic distress, which organizations took best care of their workers … and which didn’t?

In every category, ESOP organizations outperformed non-employee owned companies. In several, it wasn’t even close.

The research, funded by the Employee Ownership Foundation, focused on several areas that employees typically list as most important to them.

We’ve touched on this study before. It’s worth revisiting, though, as organizations search for a magic bullet to help survive a labor shortage that could last a while.

This isn’t the first time that ESOPs have proved to be a great deal for workers during economic hard times. The study noted that its results “echo similar findings regarding the performance and behavior of employee-owned companies during the 2008-2010 recession, although the addition of an international health emergency adds a significant new element to the employee/employer response dynamic.”

Rutgers study image, part 1

What is an ESOP?

The study offers a succinct answer to the question, “What is an ESOP?”: “An ESOP is a retirement plan that purchases shares of a company and holds them on behalf of employees who participate in the plan. When the company share price rises, plan participants share in the financial gains. When the share price falls, plan participants share in the loss. When the employee retires or leaves the firm, she or he is paid market value for their ownership stake in the business.”

The study notes that “in the vast majority of cases employee-owners incur no out-of-pocket expense to acquire shares in the company.”

Intrigued? It doesn’t stop there. The study cites specific details of how much better workers in ESOP companies fared during the pandemic. If this was during a downturn, how much better could things be when times are good?

And how much of an incentive could this be for workers to join an ESOP organization – perhaps yours?

Our next few posts will delve into the Rutgers study. If you want to learn more about what an ESOP can do for your company, just contact Excel Legacy Group. Maybe it’s what you need to secure tomorrow’s workforce … today!