By Jim Parham, Chief Operating Officer
This month we celebrate employee ownership month at Hirons. An ESOP (Employee Stock Ownership Plan) is an employee benefit program that often goes unnoticed. Basically, the definition sounds much like the name—employees working hard to attain profits that, in turn, are distributed back to them in shares of stock.
I worked for an ESOP for 10 years prior to joining the ranks at Hirons & Company and the approach was very new to me. But employee ownership is on the rise in the United States and by all accounts, it’s working very well. There are currently 14.7 million participants with 8,926 ESOP or ESOP-like plans.
Hirons & Company is now four years into the transformation from a traditionally established company to an ESOP. We’ve worked with some of the best people in the U.S. to establish and manage this innovative and exciting way to run a company.
Unlike many privately-held firms, where profits and control are handled by one person, a board, or Wall Street, an ESOP uses specific government-regulated methodologies to provide employees with an opportunity to vest in the company.
The benefits are obvious. Each year, stock shares are distributed to qualified employee owners, usually at no cost to the employees, and are vested over a period of time. The stock values are determined by the performance of the firm, not by a far-away board sitting in a high rise on Madison Avenue, New York.
Work hard, reap benefits. Work hard, gain equity in the company. Not a bad deal, is it?
Today, with Millennials accumulating in the workplace, companies are trying to find a way to build loyalty and longevity among their employees. The stereotype is that the average young professional is changing jobs more often than their jeans, and it’s a very expensive process to be constantly hiring and losing employees.
An ESOP operates much like a 401K retirement plan. So, while the stock benefit may be substantial, it’s not readily available to the employees like a cash bonus. This may be why some employee owned companies are not seeing the ESOP as “golden handcuffs” to keep valued employees around. But for those willing to invest and stick with the company, things can be pretty rosy in the future. Again, this is a positive outlook based upon company performance.
“I’m a young professional with a degree, energy and stick-to-itiveness and the Hirons ESOP works for me,” states Courtney Smallwood, the new business manager at Hirons. “Today, it’s often short attention span theatre with my peers when it comes to settling into a job. I prefer to be steady and stable in a position with growth opportunity, which is exactly what Hirons provides with its ESOP.”
ESOP’s have increased in popularity to the point that how-to seminars are popping up like daffodils in the spring. It seems that many firms, struggling to justify traditional organizational frameworks, are turning to this progressive and employee-centric model. The U.S. government is involved in ESOP’s too (well, what is the government not involved in?). The Department of Labor has a large number of employees dedicated to regulating ESOP’s and ensuring correct valuations and prohibited transactions.
Business in America is constantly evolving to meet customer demands. An ESOP is an important tool in the box when it comes to being malleable in the marketplace and attracting and keeping the best-in-class employees.