Employee Stock Ownership Plans (ESOPs) have increased in popularity since being introduced as a congressionally approved U.S. retirement plan in 1974. ESOPs are available in many public and privately-owned companies of all sizes. For company employees, ESOP participation offers a great recompense for their years of tenure and hard work.
Employee Stock Ownership Plans (ESOP) – What is it?
An employee stock ownership plan gives employees the option to become owners of stock in their company. ESOPs are financial account tools that buy, hold, and sell the company’s stock for the advantage of company contributors in the ESOP. These employees or family then get money in return for the employee shares when the employee retires, becomes disabled, are terminated or passes away.
Benefits of ESOPs
Working at an ESOP company can offer good benefits to ESOP participants. ESOP participants get great retirement benefits for no additional money. Analysis shows employee stock ownership plan companies usually are far more productive and profitable than non-ESOP competitors. Studies also reflect that employee stock ownership plans were linked with positive outcomes on employees’ commitment to remain employed at their current company. ESOP programs are indirectly designed to provide motivation and enticements, so employees will have a sense of belonging to their company.
Businesses provide these ESOP opportunities to their employees without added costs to employees. Employees ESOP contributions are tax-exempt as long as long as they work for the company. If they, then they have to pay. Employee stock ownership plan participation usually correlates to employees having a strong reason to increase their output and, ultimately, generating more profit for the company. This increase in productivity typically increases the worker’s personal pay, but also benefits the worker being that she/he is now co-owner of the company. Accordingly, the outcome on employees’ morale and motivation is very positive.
Another important facet to consider, based on studies, is that workers are interested in the successful execution of job roles of their coworkers. If other employees are more efficient in their work, it will lead to a higher overall company success which will lead to the market value of the company increasing. Conversely, where there is no ESOP plan, employees are not interested in their colleagues’ job performance. Subsequently, employees may collect wages even if his/her individual efficiency has not improved. Research mostly show that the execution of employee stock ownership plan is one means to improve productivity within a company. Productivity typically has a positive effect on improving company performance.
Based on the analysis and research results found, it can be determined that Employee Stock Ownership Program (ESOP) has an encouraging and substantial impact on employees’ productivity. Therefore, the more company executives promote and push participation in employee stock ownership plan, the greater the productivity recognized within the company. Subsequently, employee productivity has a positive and great impact on a company’s competitive performance. Company executives and HR know that increased productivity in the company will, in the long run, improve the performance of the company. From a HR perspective, the benefit of employee-ownership in their company is that it offers employees a vested interest in the success of the company.
Ultimately, the longer an employee stays with an ESOP company, the greater their incentive because of the continuing increase in retirement benefits provided by an ESOP. This blend of employee empowerment and shared ownership is a powerful way to minimizing employee voluntary turnover, increasing employee productivity and company profits.