Employee ownership: The secret to attraction and retention?

The Great Resignation; Quiet Quitting; Quiet Firing.

Whatever the buzzwords, there’s no doubt about one thing: companies are struggling to find enough workers.

There currently are two job openings for every unemployed person in America, but attracting scarce people is only half of the battle.

Just as difficult is engaging them (and keeping them engaged), so they don’t jump ship at the earliest opportunity (4 million people are doing this every month).

The less heard about solution

The solutions often presented to HRDs are numerous, from boosting wages and benefits, offering signing-on bonuses, instituting four-day workweeks, and allowing people to work from home when possible.

But while some (or all) of these additions might help employers attract and keep people initially, they are unlikely to distinguish companies from their competitors.

What’s needed is a benefit that makes organizations stand out from the pack; a benefit that connects the long-term interests of your people to the long-term future of the company; a benefit that speaks to the employee as a whole person, not just as a hired hand.

The answer? Ownership.

The best path to employee ownership: ESOPs

The data is compelling (see below). Employees who own stock in the company they work for are far more likely to think they have a great job, and have a job they want to hang onto.

If they’re treated like owners – meaning they’re given information about how the business is doing and encouraged to share ideas for improvements – the effect is magnified even further.

These positive effects are easiest to see in companies that are substantially or wholly owned by their workers through an employee stock ownership plan, or ESOP.

An ESOP is a government-regulated trust that holds shares on behalf of employees. Because an ESOP is an opportunity to own part of the company (allowing a company’s employees to own shares in the business and benefit from their appreciation in value over time), it encourages staff to develop longevity with their employer.

When employees own stocks in their employer, it also gives them an incentive to work hard to grow the company’s value. It can help people see the direct impact of their work when the stock grows in value, improving morale and dedication for qualified employees.

The benefits of this are dramatic.

ESOP companies enjoy more than 50% longer job tenure, on average. During the pandemic, they were three to four times more likely to retain staff compared to similar companies with conventional ownership.

ESOP companies also tend to outperform their conventionally owned peers.

ESOP companies – typically because of the philanthropic nature of their owners – also lay people off at one-third to one-fifth the rate of other companies (depending on the year studied).

Maybe that’s why more than 6,500 U.S. companies have established such plans – including large companies, like the Publix supermarket chain, to smaller ones like King Arthur Flour.

Other equity-sharing options

To be clear, setting up an ESOP is a significant step. It’s not for the faint-hearted, and and for some small companies it may be costly and cumbersome.

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But if it’s the concept of shared ownership that appeals, there are other ways to share equity with employees.

Publicly traded companies – or those that expect to be publicly traded someday – can set up stock purchase plans, enabling workers to buy shares at a discount. They can offer grants of restricted stock or stock options.

Privately held companies can set up so-called phantom stock plans. Here, workers don’t get actual shares – they remain in the hands of the owner – but they do receive bonuses reflecting the value of the stock or (in some cases) the increase in the stock’s value over a given period of time.

Both plans are effective in boosting employees’ economic security.

But if you want people to understand and appreciate what they’re getting – and if you want them to start thinking and acting like owners – then you’ll need to take some additional steps as well:

  • Talk the plan up: Show people what can happen to their ownership stake if the company grows and prospers.
  • Start sharing numbers about the business’s performance:  Nothing gets people’s heads in the game like seeing the results of their efforts on a scoreboard.
  • Turn your business into an “idea factory”: Set up a system that encourages workers to suggest innovations: better operational ideas, better ways of serving customers, and new products or services. Give those ideas serious attention!

You can see where we’re going here.

Other companies cope with staffing shortages by making work a little bit more appealing, offering a little more money, or providing a little bit better benefits.

But the jobs at those companies are still just jobs, and the workers are still just hired hands.

When companies offer ownership, in contrast, the whole equation is different.

People on the payroll are now owners. They build nest eggs. Some even get rich. And they’re involved in the business in a way that hired hands never are.

“Staffing shortage?” these companies ask. “What staffing shortage?”

ESOPs in a minute:

  • National Center for Employee Ownership estimates that there are approximately 6,500 employee stock ownership plans for over 14 million employees in the United States
  • One of the most prominent employee-owned corporations is the 230,000 employee-strong supermarket chain, Publix Supermarkets
  • Roughly 9 million employees participate in plans that provide stock options or other individual equity to most or all employees. Up to 5 million participate in 401(k) plans that are primarily invested in employer stock.
  • US employees now control about 8% of corporate equity.
  • Companies with ESOPs and other broad-based employee ownership plans account for well over half of Fortune Magazine’s “100 Best Companies to Work for in America” list year after year.

 

Corey Rosen, PhD, is founder and senior staff member of the National Center for Employee Ownership. He writes frequently on employee ownership and serves on several ESOP company boards

John Case is a veteran observer and analyst of the business world and a nationally known writer on business and economics. His latest book, co-authored with Corey Rosen, is called Ownership: Reinventing Companies, Capitalism, and Who Owns What.

 

 

 

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