The Start, Success and Benefits of an Employee Stock Ownership Plan

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ESOPs are a retirement program that allow participating individuals – employees – to acquire ownership in a company. Find out if it’s right for your business.

While many people move from job to job, others settle in for the long haul. Upon finding a position that offers security, consistency and, most importantly, the financial requirements to care for their families, many people simply decide to stay with their employer until they’re ready to retire. 

But for some, a company shakeup – or the economy taking a turn for the worse – can leave some workers without a job, along with the benefits and money that come with it. And while that is a very real possibility for many people throughout the United States, other companies are turning toward a different way of thinking, and it’s probably been around longer than you’d expect.

An employee stock ownership plan (ESOP) technically dates back to the early 1920s when companies like Sears Roebuck, Procter and Gamble and Pillsbury offered options for their employees that provided stock ownership through the vehicle of a stock bonus plan. In 1956, economist Louis O. Kelso created the first ESOP that met the necessary tax exemptions when he set out to help transition the ownership of Peninsula Newspapers. Kelso saw the benefit of giving all employees a share in companies, while using this IRS tax qualification as a tool for business succession.

Since then, there have been many uses for ESOPs. From utilizing this method in an attempt to save a failing company – such as Chrysler (1979), Weirton Steel (1984) and United Airlines (1995) – to defending the company from a hostile takeover – such as the Hi-Shear Corporation in 1973 – an ESOP offers an exit for embattled companies.

However, CEOs aren’t looking at ESOPs as a defense method but as a way for truly giving back to their companies and employees. 

Companies like Brookshire Brothers in Texas and National Van Lines (NVL) in Illinois are two examples of an ESOP being a true testament to the success and longevity of a company. Take NVL, for example, a moving company that signed their ESOP contract in May of 2011. The organization employs 135 various drivers and contractors throughout the United States. Their transition to ESOP took place when the third generation CEO Maureen Beal wanted to avoid selling to a competitor or being bought out completely by a private investor. Maureen is happy knowing her company and employees are being left in good hands – theirs.

It’s not just the owners that stand to benefit from this arrangement. The company itself sees enormous tax benefits, along with an increase in productivity from its employees. In fact, according to an article posted by the American Management Association, the Employee Ownership Foundation’s 21st Annual Economic Survey of ESOP Companies found that “76 percent of respondents indicated the ESOP positively affected the overall productivity of the employees.”

And, most importantly, employees see the largest benefits of all. An ESOP typically yields a higher pay and set of benefits for employees, while creating true job security and gratification. Employees of an ESOP feel united, validated and quite literally, more invested, in the success of the company.

Whether it’s a tactical decision to save a failing company, a decision to give back to dedicated employees or the best option for a CEO concerned with the future of their company, an ESOP offers tremendous advantages for everyone involved. Not to mention, it boosts the morale and success of the company moving forward.

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