ESOPs: Naturally Built for Innovation?

Research suggests that well-run ESOPs may have a big advantage when it comes to spurring employee innovation.

A recent Harvard Business Review article cited several research studies showing that companies tend to be more innovative when:

  • They treat workers well.
  • Workers feel they have job stability.
  • Businesses offer stock options to non-executive employees.

The article speculates that these factors give workers the peace of mind to take short-term risks in the interest of supporting the business’ long term health. HBR Senior Editor Walter Frick writes: “If failure in the short-term is acceptable or even rewarded, and if workers have a stake in the company’s long-term performance, they should be more likely to innovate.”

So treating workers well, giving them job stability, and incenting them to focus on the long term health of the company all spur innovation? Than ESOPs should be innovating in spades.

Here’s why:

ESOPs—and other employee owned firms—provide better job security. During the Great Recession, companies with employee stock ownership were four times less likely to lay off workers than those without such ownership, according to research conducted for the Employee Ownership Foundation.

Data from June 2015, when the economy was clearly out of recession, are even more compelling: Companies with employee stock ownership were more than seven times less likely to lay off workers than other companies in these economically healthier times.

ESOPs focus workers on the long term—perhaps more effectively than stock options. When employees become owners, they are more likely to be focused on the business and its long term interests. And ESOPs might be more effective at these goals than stock options.

ESOPs—because they are retirement plans, conceptually similar to 401(k)s and pensions—are generally easier to understand than stock options. What’s more, workers get these funds when they leave the company, or retire—long term decisions made by them, not the business.

And because ESOP funds are distributed only upon leaving the business or retiring, they encourage workers to focus on the business for the duration of their tenure, or even their careers. Long term, indeed.

Well-run ESOPs treat employees like owners. (In other words, well.) ESOPs may be well run or poorly run, but the ones that are run well encourage participation among employee owners, solicit their feedback, empower them to improve the business, and educate them on the financial inner workings of the firm.

When employee owners participate in running the business, they generally treat themselves well and with respect. (They would be foolish to treat themselves poorly, wouldn’t they?)

So by doing what they do naturally, ESOPs should do a superior job of spurring innovation. Just one more piece of evidence showing that ESOPs are good for employees and businesses alike.

(This article originally appeared in the January 2016 ESOP Report.)

Pick Your Omen

Last Friday, January 22, The ESOP Association officially said goodbye to its physical accommodations of the past 24 years, and started a new era in a different building. We moved only half a block away, (to 1200 18th Street, NW, Suite 1125, Washington, DC 20036-2506) but sometimes even small moves portend larger ones.

What can The Association expect in the next 24 years (or for however long we inhabit this space)? Will this new era bring continued growth and legislative success for ESOPs? Or will it bring decline and regulatory burdens that make ESOPs a thing of the past?

If you believe in this sort of thing, pick your omen from among the following choices:

  • At the very moment our move was scheduled to take place, the Washington, D.C. area was hit with an epic snow storm. When it was all over, more than 29 inches of snow had fallen at two of the region’s three airports. At the third, accumulation totals were thrown off when the measuring apparatus got buried (yes, in the snow). Maybe your city can handle more than two feet of snow, but ours isn’t prepared for an icy deluge of this magnitude.
  • Due to good management on the part of ESOP VP of Administration Gwenn Rosenthal, and the flexibility of a variety of vendors and providers, our move was moved up a day. The result? When the first flakes hit the ground Friday, all our boxes and equipment were already piled up in our new offices. If Gwenn hadn’t been able to speed up our move, it would have been delayed for days as streets and sidewalks were dug out, and our previous landlord might have hit us with a significant fee for overstaying our welcome.
  • Our new home is on the very same block where a U.S. president once lived. About 125 years ago, Theodore Roosevelt first came to Washington to serve as a Civil Service Commissioner. As president, Roosevelt was an energetic and fiery individual known for sticking up for the little guy, and one of the hallmarks of his administration was his success at breaking up corporate monopolies. A monopoly, of course, concentrates ownership in the hands of the few at the top. An ESOP, of course, distributes ownership among employee-owners throughout an organization.

So, which omen do you choose? Do you believe our future will be one where movement is mired and advancement stifled by factors beyond our control? Or do you believe that, like a well run ESOP, we can successfully manage situations and overcome the challenges we will face? Do you believe we can make a long-term difference, helping provide opportunities to shift the benefits of ownership from the few to the deserving many, as the Rough Rider himself once did?

For us, the choice is clear: We’ll take omens number 2 and 3, please.

(FYI, when you are in DC—either for The ESOP Association’s Annual Conference in May or some other event—stop by our offices. We’ll even give you the address for Roosevelt’s former home. Just don’t expect him to answer the door.)

A Great Example of Honest Video

What does real life look like in your company? To give outsiders an idea, Van Meter Inc. produced a terrific video featuring real employee owners talking about their experiences in their own words.

Honesty and sincerity are the keys to this video, which uses a simple background to keep viewers focused on the words and emotions of the people who work at Van Meter each day. Clean type-driven transitions help move the video from one subject to the next.

And, as with feature films, viewers should stick around until the end to see the blooper reel!

 

See anything in this video that might work for your ESOP company? If so, than thank Van Meter for sharing their video when they entered the 2015 Annual Awards for Communications Excellence competition. (Van Meter was honored as a runner up.)

To see more examples of great video, check back with our blog later on. And for more information on entering this year’s AACE competition, click here.

Maintaining Momentum on HR 2096

Two more Congressional representatives recently joined the list of co-sponsors for pro-ESOP bill HR 2096: Joyce Beatty of Ohio and Todd Rokita or Indiana.

This is excellent progress toward our goal of 100 co-sponsors for this important piece of legislation!

To see the latest legislative update video from Michael Keeling, President of The ESOP Association, click here.

 

A Strong ESOP Spokesman Receives His Reward

An ardent spokesman for the ESOP model retired at the end of last month, and will start reaping the rewards of many years of employee ownership.

That man, Rob Zicaro, has done a great deal to advance the cause of ESOPs. Perhaps his most impressive achievement came in 1993, when President Bill Clinton held a panel discussion on the Future of the American Workplace. The panelists included distinguished, well-dressed figures, such as Secretary of Labor Robert Reich. And one rank-and-file worker—Rob—who wore a t-shirt emblazoned with “employee owner” across the front.

To many in the ESOP community, Rob won the day. He offered a ground-level and impassioned view of what it is like to be an employee owner. He spoke about how his organization helped workers develop and learn the business. When others spoke of having a “sense” of ownership, he said: “I have ownership. Not just a sense of ownership. There is a difference.”

Rob’s friend and mentor was Charles Edmunson, for whom the Edmunson Scholarship is named. With Edmunson, Rob became very involved in ESOPs. The two even traveled together to Hungary to visit companies and met with government officials regarding ESOP companies.

Over the course of his career, Rob advanced at Web Industries, while also working his way through school. He earned a bachelor degree in psychology from Cambridge College, and an MBA in Human Resources & Development from Lesley University.

Zicaro, a drummer, plans to devote his time to writing and performing music.