A business’ employees or even the local community can become partial or complete owners of a business through an Employee Share Ownership Plan (ESOP). Employee ownership not only gives these people a stake within the business but also provides them with an even stronger reason to keep the business alive and a desire to see that business prosper and grow just as a business owner would. Businesses on the brink of being sold or being closed down have been known to employ an ESOP, resulting in an increase in productivity and innovation, with all the employees’ jobs saved. When employees have a share in a business, they are likely to have a greater incentive to perform, since as the business grows, they can also benefit.
Small businesses can be hampered by many forces such as cash flow issues, a lack of succession planning, poor management and/or staff retention. However, employee ownership is an increasingly popular way to potentially fix these issues that doesn’t involve closing down your business. While we often acknowledge our employees as our number one assets, we rarely recognise the potential contribution they can make to resolve some of these difficulties. An ESOP can also release the energy, enthusiasm, involvement and creativity that flows from an employee “owning a piece of the action”.
ESOPs are not just for large, publicly listed companies, they can equally benefit small businesses and be a useful tool for any business wanting to attract, retain and motivate staff. Another aim of employee ownership is to encourage employees to invest in the business they work in, and to liken employee performance to the business’ financial and business objectives. Some potential benefits of employee ownership include:
• Less levels of management
• Collective and collaborative policies and strategies
• Co-operative relationships
• High levels of morale
Offering ESOPs in your staff remuneration packages is not always the same as offering them actual ‘shares’ in the business. Many employee owned businesses are unlisted and don’t actually have physical shares, it is more about sharing in the surplus value of the business. Many employers make the decision to share their business with employees or other people because:
• It is pragmatic to do so
• Can help raise much needed funds to keep the business afloat
• It may be important for the performance of the company since many highly trained and skilled people desire equity in the workplace.
The business owner will need to establish how the equity will be presented to the stakeholders of the business (being the employees and other people.) This may be in the form of actual shares or a variety of other ways. There are 4 general types of ESOPs can help determine the payments methods:
• Fully paid plans.
• Partly paid plans
• Options plans.
• Replicator plans.
In essence, giving employees access to some part of the business can transform its performance. There is international evidence that employee ownership results in higher growth, better quality, more satisfied customers, higher productivity, less staff turnover and higher morale.
If you would like more information on employee ownership, or would like help to set up an ESOP our experienced team of lawyers and accountants here at The Quinn Group can assist you in rejuvenating your business. For this, or any other small business issues submit an online enquiry or call us on 1300 QUINNS (784 667) or on +61 2 9223 9166 to book an appointment.