ESOP: Employee Stock Ownership Plan
What is an ESOP?
An employee stock ownership plan (ESOP) is a way in which employees can own shares of the company at which they work. In the United States, ESOPs are a very common form of employee ownership. They have been growing in strength since about 1974. Over 11,000 companies have an ESOP in place, and nearly 9 million employees are involved in them.
ESOPs have been studied in depth for nearly 35 years. These studies have proven that ESOPs can dramatically increase company performance in many areas. They foster an “ownership culture” in the company which can make employees feel and act more like owners and less like employees. Other benefits ESOPs may provide are:
- Significantly increased retirement benefits
- Increased retention and less turnover of good employees
- Greater ability to recruit new employees
- Associated with greater stability of employment.
- Linked to higher rates of survival among companies.
What’s interesting about employee ownership isn’t only that it’s widespread, but that it also turns up in a disproportionate number of influential and innovative companies.
- Nearly 80% of the corporations on Fortune’s “100 Best Companies to Work For” list.
- One third of the company’s on Inc. magazine’s list of the 500 fastest growing privately held businesses.
Ownership isn’t just a benefit, it’s a responsibility and the basis for a company to grow and thrive. The transition to employee ownership is only the starting point. Employees; now employee-owners, must begin to think and act like owners and fully understand the opportunities before them.
A phenomenon that exists in ESOP companies is called the “Equity Attitude”, where employee owners approach day-to-day work with “This is our company, and we will do whatever necessary to help it succeed.”
Lueken’s Village Foods will start 2013 as a new minority-share ESOP with a goal of 100% employee-ownership within 5 years, in which time the ESOP will purchase the business through a series of transactions.
Why an ESOP?
Joe Lueken has always run Lueken’s Village Foods with an entrepreneurial spirit and has been loyal and dedicated to employees and their development as well as support of the community. In recent years, many offers to purchase the stores have been made, but accepting those offers would have come at a price that would be in conflict with that loyalty and support. New ownership, from outside Bemidji, would likely have meant new management and a reduced focus on our community since profit dollars would have flowed out of our town.
In contrast, employee-ownership at Lueken’s means increased opportunity for employee-owners, their families, and continued support of our community. When profits stay local, everyone wins.