Survey Shows ESOP Leaders’ Enthusiasm for the Structure Rises Over Time; Perceived Benefits Overwhelmingly Outweigh Regulatory Challenges

Leaders of companies with employee stock ownership plans (ESOPs) overwhelmingly favor the plan structure for several reasons they believe deliver a competitive advantage, and their enthusiasm grows over time, according to a survey conducted by an independent research firm for Verit Advisors®, a leading middle market investment bank for private and family-owned companies.

The survey also finds that at least 90% of leaders of companies considering an ESOP believe employee ownership will preserve their legacy, improve their financial performance and growth, generate significant tax benefits, and give employees better incentives than their non-ESOP counterparts.

The survey of leaders of 90 ESOP companies and 80 firms considering one offers an in-depth spotlight on the reasons the ownership structure is gaining popularity. Nationwide, roughly 6,500 ESOPs cover an estimated 14 million participants, and Congress and state legislatures are enthusiastically adopting measures to encourage them.

The Verit survey also highlights ESOP leaders’ views on what attracted them to employee ownership; where they learned about it; the structure’s benefits, including to a company’s culture; and its main challenges. Further, the research, conducted for Verit by Greentarget, offers insights useful to financial and other advisors and consultants on employee ownership.

“It is well-documented that the ESOP structure contributes to superior business performance. No wonder more business owners are considering a plan as a way to realize, either fully or in part, the value of their organization,” says Mary Josephs, Verit’s CEO and founder.  “Our research helps explain what motivates, as well as what deters, business owners and managements from embracing employee ownership in their organization.”

The survey’s major insights include:

  • For over 90% of ESOP leaders, employee ownership preserved their company’s legacy, improved their financial and operational performance, provided significant tax benefits, and led to higher retention rates of employees and management.
  • Once the ESOP structure takes root, the perceived benefits evolve over time, with ESOPs completed at least a decade ago noting the distinct competitive advantage over non-ESOPs as well as their employees’ higher sense of purpose.
  • Employee ownership gives employees a strong feeling of inclusion, equity and purpose, which in turn generates a higher retention rate.
  • Complexities of ESOP regulatory reporting and the time involved to establish an ESOP pose challenges, but other initial concerns, such as company capitalization, the cost of repurchasing shares, and employees’ grasp of the ESOP structure, proved less troublesome than anticipated.
  • Networking with peers about employee ownership proves a valuable source to ESOP prospects by providing context to the information gathered first from online search engines.
  • Advisors prove especially valuable for navigating the process, providing detail on operating and personnel impacts, and in avoiding “transaction fatigue” by managing expectations and providing perspective throughout the process .

Verit’s Employee Ownership Monitor also surveyed 30 leaders of companies not considering an ESOP, and Verit Managing Director Jake Cravens said their responses offer important insights. “Among other things, they said they would gain confidence in considering employee ownership if they better understood its impact on operating performance and employee retention,” he noted.