Verit Advisors’ First Survey Of ESOP CEOs Shows Their Deep Satisfaction With Employee Ownership

In my 30 years-plus advising family business owners and others on employee stock ownership plans, I’ve often seen surveys of ESOP employees. Invariably, they document employees’ greater financial and job security as well as satisfaction compared with their counterparts at conventional firms.

But how do ESOP owners and top executives feel? Are these CEOs equally positive about the benefits of employee ownership?

To determine how C-suite executives feel about ESOPs and employee ownership, we at Verit Advisors® decided to ask them. We commissioned original research by Greentarget, an independent survey firm, that polled 200 company founders and C-suite executives across a broad range of industries. They comprised 90 companies with a full or partial ESOP, 80 companies considering an ESOP and 30 companies not considering one.

We were delighted to find that ESOP owners voice near-unanimous satisfaction with their employee ownership structure. By at least 90%, leaders of ESOPs agree the ESOP structure:

• Preserved their company’s legacy.

• Improved their financial and operational performance.

• Provided significant tax benefits.

• Delivered employees better incentives than non-ESOPs.

• Generated gift and estate planning opportunities.

“A growing understanding exists that the ESOP structure permits individuals to live the American dream, while enabling selling shareholders to be compensated fairly for the company they built up,” explains William McDermott, a current director of multiple construction industry ESOPs.

From our research, we were surprised to find that the perceived benefits of the ESOP structure evolve over time, with respondents’ satisfaction increasing the longer it has been since they completed their ESOP transaction. While leaders of ESOPs completed within the last five years most prize an ESOP’s tax and operating benefits, leaders of ESOPs completed at least a decade ago most value their employees’ higher sense of purpose plus the advantages they perceive the ESOP structure gives them.

We were gratified to find that ESOP leaders believe employees gain a sense of inclusion, equity and purpose from an ESOP – values increasingly important to employees, especially younger ones. Respondents believe these feelings of affiliation generate a higher retention rate for employees and management.

Of course, opting to go the ESOP route isn’t without its challenges. ESOP leaders most often cited operating rules and the complexities of regulatory reporting, including the time involved to comply with regulations. Still, these CEOs said that other potential challenges, such as the cost of repurchasing shares, company capitalization and employees’ grasp of the ESOP structure, proved to be less severe than expected.

As for what motivates forming an ESOP, leaders say tax savings are a key consideration, but taxes alone aren’t enough to motivate completing one. Company founders tend to prioritize personal tax benefits when considering an ESOP, while non-founder ESOP leaders find corporate tax benefits more persuasive. However, respondents said that if taxes are the sole priority without evaluating an ESOP’s workplace culture and employee benefits, they are less likely to actually complete the plan.

For companies mulling an ESOP, CEOs said that networking provides a valuable source of information about employee ownership. While online search provided much of their initial information about ESOPs, leaders of prospective ESOPs credit networking with their peers, as well as their advisors’ expertise, with supplying significant information and insights about employee ownership.

In upcoming blog posts, I plan to focus on other findings of our research, especially since the survey made clear that we employee ownership advisors would benefit by accelerating our outreach and education efforts. ESOP prospects said they want more detail on the operating and personnel impacts of employee ownership, including its social and culture benefits.

We believe the findings in our initial Employee Ownership Monitor come at an opportune time since the number of ESOPs is climbing, reflecting vigorous ESOP-related activity in Congress and state legislatures. Roughly 6,500 ESOPs in the U.S. cover 14 million participants. Interest in employee ownership has increased so much that I continue to believe this will be the Decade of the ESOP.

For more information about and detailed findings of Verit’s Employee Ownership Monitor, please go to our website and our research link on the homepage.