What is an ESOP and why does employee ownership matter?

Employee Ownership Month is celebrated every October. It was started back in 1982 by the National Center for Employee Ownership (NCEO) as a week-long celebration (with lots of glitter) before it was expanded into a month. This month-long recognition allows companies to showcase the spirit of employee ownership and provides opportunities to educate employee owners on the benefits of employee stock ownership plans (ESOPs). 

The success of a company is frequently linked to retaining motivated and engaged employees. ESOP businesses tend to be more successful. Through stock options, employees can become invested in their company’s values — simultaneously building their careers while strengthening the business. Being an ESOP company offers a host of benefits to both your employees and your customers. 

In general, ESOP companies tend to be more successful with an ESOP than they would be without one — they grow faster, are more innovative, and see higher financial returns. In this blog, we’ll cover what an ESOP is, how being ESOP impacts a company and its employees, and why you would want to work for an ESOP company.

What is an ESOP?

An Employee Stock Ownership Plan, or ESOP, is a type of retirement plan where investment dollars go back into the company. Employees are granted shares of company stock or cash contributions throughout their employment, and after retirement, death, disability, or parting way — the employee’s shares are distributed (either to them or beneficiaries) in stock, cash, or a combination of the two. 

ESOPs are distinct from employee stock purchase plans that allow employees to buy company shares through payroll deductions. ESOPs also differ from incentive pay plans that grant employees company equity, often as stock options or restricted shares, but don’t give employees a majority stake in the business.

How does being an ESOP impact a company and its employees?

ESOP companies allow employees to build retirement funds over time without any additional monetary investment. Employee ownership plans provide retirement benefits that are much larger and more equitably distributed than other types of retirement plans. 

Employee ownership can also strengthen workplace culture and trust in the company, which can increase job satisfaction. Employees of ESOP companies are often more engaged with the company, are more likely to address issues, and act in the company’s best interest. Under this particular model, performance matters greatly to the success of both the employee and the company overall, which benefits the employee and their shares in the company in the long run.

Customers of ESOP companies also reap some benefits of the model. Customers may receive better customer service at every touch point because employee-owners are much more vested in the company. Customers can also expect more consistency when working with ESOP companies because they experience less turnover. A study of General Social Survey (GSS) data found that employee-owners are 20-50% less likely to seek new jobs, and that overall job satisfaction at ESOP companies consistently outpaces privately-held firms.

Companies that implement ESOP models also see major benefits. There is a tax advantage to being an ESOP — the portion of a company owned by the ESOP pays no federal or state corporate income tax, which can translate to higher profit margins. ESOPs can be a cycle of success for employees, customers, and the overall company.

Why would you want to work with an ESOP company?

Employees benefit from ESOPs in three main ways, they gain retirement benefits and an increased sense of job security. ESOP companies tend to invest more heavily in employee education, training, and engagement for long-term success. Only about half the working-age population has retirement savings of any kind, and according to NCEO, the median retirement account balance is zero. ESOP companies can help to change this narrative and allow more people to access wealth — leading to more options, security, and the ability to plan for the future. 

Because employees have a stake in the company’s ownership, it is actually much more difficult to lay them off. This means ESOP companies lay off employees at lower rates compared to privately-held companies. National surveys also show that among employees at private firms, actual layoffs and the perceived likelihood of being laid off are lower for employee owners.

ESOPs are actually designed to benefit long-term employees. The longer someone stays employed by an ESOP, the more vested they become, and the more benefits they see. ESOP companies offer features that make their jobs more desirable and are more likely to keep employees in those jobs. It is difficult to overstate an individual's potential financial loss when involved in a layoff — and the potential benefit to individuals and the nation of keeping employees employed. Research shows that even two decades after the fact, most employees involved in layoffs had not returned to their previous wage levels.

Our ESOP in Action

Kentwood Office Furniture is proud to be an employee-owned company. Our employee-owners are uniquely qualified to help other business owners create spaces that meet the needs of their employees and customers from manufacturing to design to sales and installation. 

We frequently recognize and reward our dedicated employee-owners with our Most Valuable Owner award program, which is a nomination-based award, as well as other engaging activities like the “Meet One of Our Employee Owners” series, Bob Ross Chia Pet Growing competition, and more. We also empower our employee-owners to serve the community and support causes that are most important to our employee-owners and clients through our KOF Community Outreach Committee and the KOF in Action initiative. 

Every person at Kentwood Office is invested in the success of our company because of the direct link between the work they do and the overall health of the company. This means our customers receive the best service and we go beyond furniture to support our communities through intentional outreach — everyone wins. 

Without question, being part of Kentwood Office Furniture is being part of a team that cares. If you would like to learn more about us, the benefits of our ESOP, or are interested in joining our team, please reach out to your nearest office location or visit Careers at Kentwood Office Furniture.