On a recent episode of LinkedIn’s This Is Working podcast, Mark Cuban had a straightforward suggestion for how to keep employees engaged, motivated, and committed as the economy starts to come back to life: “Give them stock in a meaningful way,” he said. “You’re going to need them to grow your company. We all are going to need them to grow this country […] back to where it was economically.”
As businesses across the country start to recover from the economic impact of the COVID-19 pandemic, many business owners are looking ahead to the future and wondering: what’s next—and what can we do to be ready?
A Menke Employee Stock Ownership Plan (ESOP) can give your company the competitive edge it needs to boost your recovery and protect against further disruptions, including another shutdown. And employee motivation is only the beginning.
The Right ESOP for You
Every Menke ESOP is custom-tailored to fit our clients’ unique needs. Broadly speaking, ESOPs fall into two categories: Employee Incentive ESOPs and Succession ESOPs. Both forms of ESOP bring with them significant benefits that can give your business a distinct edge over your competition during this recovery period and beyond.
In this post, we will be looking at some of recovery-powering benefits of Employee Incentive ESOPs.
What Is an Employee Incentive ESOP?
Employee Incentive ESOPs are for shareholders who are not currently looking to pass majority control to their employees, but who want to be able to offer their employees and new hires a powerful new retirement benefit that will give them a true stake in the future of the business.
Adding an Employee Incentive ESOP to your benefits package now can be the key difference that attracts new hires and keeps current employees motivated and engaged through a difficult period—and gives your business the advantage it needs to thrive.
For examples of the impact an Employee Incentive ESOP can have a business, read out client case study on Ringland-Johnson Construction, or how Menke client Heath Ceramics decided to sell a portion of their business to their employees.
Here are just some of the ways an Employee Incentive ESOP can put your company in a better position than ever before.
Tax Advantages
What would you do for your business today if you knew its tax bill would be cut in half next year? Or reduced to zero? If there is a universal truth to be found in all this uncertainty, it is this: during a recovery, the company that saves more money wins. Selling to an ESOP can position your business to reduce, or even entirely eliminate its federal (and in most cases, state) tax burden. The greater the percentage owned by the ESOP, the greater the savings. And the contributions you make to the ESOP are tax-deductible.
Those savings can empower a company to make it through challenging times without needing to eliminate jobs, or give your business the extra room in its budget to make a strategic acquisition using tax-deductible dollars. The tax advantages of an ESOP can quickly change your company’s financial situation at a time when you need it most.
Improve Your Odds
ESOP companies are more likely to survive an economic downturn. It’s a proven fact A 2017 study showed that ESOP companies were 50% less likely to lay off employees during the last two recessions. ESOP companies are also 50% more likely to stay in business over a 10-year period than their traditionally-owned counterparts.
As we’ve written before, these improved odds don’t happen automatically, simply because a company has an ESOP. They are the result of the advantages and opportunities that an ESOP brings to a business, including the tax savings, improved employee morale, and the competitive edge of an industry-leading benefits package. But the facts are clear: if you want to give your business the best chance possible to survive the next downturn, whether it’s from COVID-19 or something else entirely, the smartest thing you can do is to turn your employees into owners.
Boost Employee Engagement
Menke Group CEO Kyle Coltman put it best when he said: “Nobody washes a rental car.” In difficult times especially, it’s common for employees to have one eye on the door. If they see another opportunity that they think may offer more stability, they’ll take it.
But when employees have an ownership stake in the business—when the success of the business translates into success for them and their fellow employee-owners—then studies have repeatedly shown that they will go above and beyond to keep the company afloat. Whether that’s putting in extra hours, working to bring in new customers, or finding little ways here and there to save extra money, when employees are engaged and motivated to apply their own creativity and ingenuity to help the business, everyone wins.
ESOPs increase employee productivity. And in times like these, a boost to productivity can be a major competitive advantage.
Better Hiring and Retention
Where would you rather work—the company where the employees just feel like they’re cashing a paycheck, or the company up the road that’s rewarding its employees with a genuine stake in its continued survival and success?
An ESOP is a powerful benefit to be able to offer prospective employees. If your company is in a point in its recovery where you can hire new staff, there’s a good chance your competitors are, as well. Employee ownership can easily be the determining factor that brings talent to your business instead of theirs.
Reward Employee Loyalty
If your employees stuck with you through the worst of the pandemic and they helped you get your business back to a good position, then now is the time to thank them for their service in a way they will never forget.
Mark Cuban advised, “You will get more from your employees, and they will be more committed if you share equity immediately in a meaningful way, so that everybody rises up. No entrepreneur can do this alone. You need every single employee committed to helping you get through this, so recognize that. Reward them for it.”
As we recently discussed in a piece co-authored with Project Equity, ESOPs can have phenomenal power to lift people up and improve lives, particularly for low- and medium-income workers. At a time of great uncertainty and widespread unemployment, there may be no better way to make employees feel secure, valued, and like they have a future with your company than giving them a stake in its success.
Make Your Recovery Count
If your business is recovering from the economic shutdown, it’s because you and your employees worked hard to get it there. You scrimped, you saved, you were proactive, you got creative, you did what you had to do for the good of yourself, your family, your business, and the people who rely on you for jobs and leadership. Keep that momentum going by doing everything you can to ensure that your recovery is more than just temporary.
This is the time to think about the future, and what you can do to make that future as bright as possible for all the people who count on you. An Employee Incentive ESOP has the power to take your recovery to the next level, and turn the moment that your company bounced back into the moment that your company left the competition behind.
Menke is your one-stop shop for Employee Incentive ESOPs. From drawing up the plan document to structuring the deal to handling valuation in-house, we provide the full range of services you need to implement your ESOP, saving you time and money and making it easier than ever to give your employees the industry-leading benefits they deserve.
Contact us today to get started.
Menke & Associates, Inc. has helped over 3,500 companies successfully transition to employee ownership. Our holistic ESOP approach enables a positive outcome for the company, its employees and its shareholders. We believe ownership is powerful.
