It’s no secret that hardworking employees are crucial to the success of any business. Employees who are dedicated and engaged have the potential to increase efficiency, deliver value, and drive profit. However, what may come as a surprise is that many business owners fail to implement effective retention strategies to keep their top-performing employees on board.
In today’s competitive market, the ability to attract, retain, and motivate employees to perform at their best can be the difference between success and failure. While traditional incentives such as above-average wages, staff awards, or commissions may be effective in the short term, they do little to change the overall culture of a business. Employees soon come to expect these incentives as a matter of course.
To truly motivate employees to be as committed to success as business owners are, a long-term incentive plan should be implemented. One such plan is an Employee Share Ownership Plan (ESOP). ESOPs allow employees to own a part of the company they work for by providing shares or other interests related to their employment. The goal is to encourage employees to think and act like business owners, gaining a new perspective on the business.
Research has shown that ESOP companies have improved performance, higher profit, and better staff retention compared to non-ESOP companies. In addition, ESOPs support employee development, reward high-performing employees, give the company a competitive advantage in attracting and retaining staff, and help employees achieve their financial and lifestyle goals.
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ESOPs also improve the overall attractiveness and value of the business. In a sale situation, an ESOP demonstrates the company’s performance and the health of its financial assets, showing its ability to pay funds over a period of time based on performance targets achieved.
The objective in designing an ESOP is to create a structure that aligns employees’ financial and lifestyle goals with those of the business. This results in a cohesive and committed team focused on working together to achieve success and share the benefits of a profitable business.
While ESOPs have traditionally been more common among larger corporate firms, they can also be adapted for small to medium-sized enterprises (SMEs).
ESOPs can be structured in various ways, such as linking increased profits to performance payments made into a trust on behalf of employees. The trust then uses these payments to purchase shares in the employer, giving employees the opportunity to part-own the business while enjoying the security and lifestyle of being an employee. Employees can also receive annual dividends, serving as a short-term supplement to the long-term benefits of owning a stake in the company.
When designing an ESOP, it’s important to consider the current performance of the business. The plan should be simple, applicable to all employees, reliable, transparent, and supported by all company owners, board members, and management.
In summary, implementing an ESOP can be a valuable tool in retaining top-performing employees, improving the overall performance and value of a business, and aligning employees’ goals with those of the company. By motivating employees to think and act like business owners, a cohesive and committed team can work together to achieve success and share the benefits of a valuable business.
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ABOUT THE AUTHOR
Tim Fawcett CEPA CAP CMEA
EastWind Business Solutions Inc.
Tim Fawcett, the founder and managing director of EastWind Business Solutions, Inc., a merger and acquisition advisory firm that specializes in strategic sales of SMEs with revenue between $2M-$100M+, has provided strategies to over 2,000 baby boomer business owners in Canada and the USA, helping them accelerate their value and prepare their businesses for sale, and guiding them through best practices in exit planning.
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