File Photo / Tim Greenway
Nate Moody of Lebel & Harriman
October 23, 2024
How To
Educate your employee-owners on your ESOP
By Nate Moody, Lebel & Harriman
Employee Stock Ownership Plans offer a unique opportunity for companies to create a culture of ownership and drive employee engagement.
Maine has seen a flurry of companies go ESOP over the past decade. However, for an ESOP to be fully effective, employee-owners must understand how the plan works and why it matters. Education is crucial to unlocking that understanding, leading to higher engagement, improved company performance and increased employee-owner satisfaction.
Studies have shown that companies with highly engaged coworkers outperform others by up to 21% in profitability. For ESOP-owned companies, the stakes are even higher. Employee-owners with a clear understanding of their stake in the company are more likely to take actions that contribute to the organization’s success. According to the National Center for Employee Ownership (NCEO), companies with ESOPs grow 2.5% faster than non-ESOP companies, largely due to the sense of ownership employee-owners feel.
For employee-owners to appreciate the value of an ESOP, they need to understand its structure and benefits. Ongoing education initiatives can help make the ESOP concept clear and engaging. Here are specific strategies to educate employee-owners.
Orient new employees: Introducing the ESOP during new hire orientations ensures that employees understand from day one that they are part-owners. This is crucial for setting expectations and establishing a culture of ownership early on. A strong introduction to ESOP principles ensures employee-owners know how their efforts affect the company’s success and their financial future.
Provide ESOP statements with explanations: Providing annual ESOP account statements is an excellent opportunity for education. These statements should not only show the value of the shares but also explain what factors caused an increase or decrease in value. This transparency builds trust and helps employee-owners understand the direct connection between their work and their financial stake.
Hold interactive workshops: Workshops can help break down the complexities of ESOPs, financial literacy and company performance. Using real-life examples or case studies, companies can show how day-to-day decisions — such as reducing costs or improving customer satisfaction — impact the value of ESOP shares. Interactive learning tools like group activities and Q&A sessions can make ESOP concepts more engaging and easier to understand. Couple it with education on your 401(k) plan so they understand the similarities and differences between the two qualified retirement plans.
Form ESOP committees: Employee-led ESOP committees are an effective way to promote awareness and foster peer-to-peer learning. These committees can organize events, distribute educational materials, and provide a space for employee-owners to ask questions. Involving employees in leadership roles through ESOP committees enhances their knowledge and commitment to the ESOP.
K.I.S.S: Keep it simple! ESOPs can be complex, filled with jargon and financial terminology. Simplifying the language used in educational materials is crucial to ensure all employees understand their ownership role. Visual aids, infographics and short explanatory videos can help break down difficult concepts, making them more accessible and engaging for everyone.
Nate Moody is a retirement plan advisor and partner at Lebel & Harriman Retirement Advisors, a financial services firm in Falmouth.
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