Employees Love ESOPs—and Research Proves It

Today we kick off Employee Ownership Month, a month-long celebration of ESOPs and an opportunity to educate the world about the benefits employee ownership offers to employees and businesses alike.

It’s a celebration that takes a month to complete because there is that much to like—even, love—about ESOPs. And it is all backed up with data—much of it courtesy of the Employee Ownership Foundation and those who support it.

With so much ground to cover, it is impossible to fit it all into one blog post. So here we will focus on some of the key reasons employees love ESOPs. (Later we’ll look at why businesses love ESOPs.)

No-Cost Retirement Plan

Some of the reasons that employees love ESOPs are obvious and require no research. For example, ESOPs typically require no out of pocket expense from employee owners, who get a fantastic retirement option without investing a dime of their own money. There are precious few things in life you can obtain without money leaving your wallet; ESOPs are the rare exception.

A Second Retirement Option

What can employee owners do with all the money they don’t have to invest in an ESOP? They can invest it in other areas, including their 401(k)s. The Motley Fool reported that 20 percent of employees leave money on the table because they don’t put enough in their 401(k)s to earn the full 401(k) match offered by their employers. Because employee owners at ESOP companies don’t pay for their ESOPs, they are more likely to be to have the funds to invest in their 401(k)s so they can receive that full match.

What’s more, most employee owners have access to 401(k)s: Polls of ESOP Association members show that 93.6 percent offer a 401(k), in addition to their ESOP.

So, while many Americans (some estimate 40 percent or more) have no retirement savings at all, employee owners typically have two options for saving—and should be well positioned to capture the full 401(k) match offered by their ESOP companies.

Stable Jobs

Anecdotally, executives in the ESOP community talk about being right-sized—meaning they do not have to conduct massive layoffs when times are tight. That anecdotal information is reinforced by research from the General Social Survey (GSS) showing that employee owners are 6.2 times more likely to avoid a layoff than employees at conventionally owned firms.

Let that sink in for a second: Employee owners get two retirement plans—one of which costs them nothing—and they also are more likely to keep their jobs, and those terrific job-related benefits.

(The GSS, by the way, is the single best source for sociological and attitudinal trend data covering the United States. The Employee Ownership Foundation has funded GSS questions relating to employee ownership since 2004.)

Training

In a fast-changing world, employees are only as valuable as their updated skill sets. While some companies try to skimp on employee training, employee owned businesses see the value in investing in their employee owners’ futures.

Companies with ESOPs significantly outperform their conventionally-owned counterparts at offering employee training. In fact, ESOP companies are 1.4 times more likely to offer such training, according to research funded by the Employee Ownership Foundation. (See the graph below.)

Investing in training can be an essential way to develop employees and ensure they have the skills to advance and fill more prominent, vital roles in an organization. This kind of investment shows that employee owners are valued; it also helps ensure the kind of ongoing learning and development that keeps people engaged in efforts to move the company forward.

Everyone Loves ESOPs

With advantages like these, is it any wonder that employees want to work at employee owned businesses? Yet another GSS study found that 38 percent of Americans want to work for a company owned by its employees. This level of interest by employees in employee ownership provides a real benefit to ESOP companies. We’ll dive into that topic next time.

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