The ESOP Association and its member companies have been celebrating Employee Ownership Month every October for over 20 years. The month-long observance aims to celebrate the myriad benefits of employee stock ownership plans (ESOPs) through employee education and team-building events. Tata & Howard celebrated for the first time this year, as October 2015 marks the one-year anniversary of the company becoming a 100% employee-owned company. Throughout the month, T&H employee-owners have been participating in contests, calls to action, and special events in order to celebrate not only ESOP Month, but also the first anniversary.
What is an ESOP?
An ESOP is a program that provides a company’s workforce with an ownership interest, most frequently at no up-front cost to employees. ESOPs are implemented for different purposes, often as a way to provide for the future transfer of ownership of a successful, closely-held private company from owners to employees.
In the United States, ESOPs are a defined contribution plan, which is a form of retirement plan. ESOPs are regulated by Employee Retirement Income Security Act (ERISA), a federal law that establishes minimum standards for retirement plans in private industry and extensive rules on federal income tax effects of employee benefit plans. ERISA was enacted in 1972 to protect the interests of employee investment plan participants.
Infographic by National Center for Employee Ownership (NCEO) from What Is an ESOP?
According to the ESOP Association, ESOPs provide many benefits to employees, some of which are highlighted below:
- There are approximately 10,000 ESOPs in place in the U.S., covering 10.3 million employees (10% of the private sector workforce).
- About 330 ESOPs (3%) are in publicly traded companies.
- An estimated 7,000 of the 10,000 companies have ESOPs that are large enough to be a major factor in the corporation’s strategy and culture.
- Approximately 5,000 ESOP companies are majority-owned by the ESOP.
- Approximately 4,000 are 100% owned by the ESOP.
- At least 75.4% of ESOP companies are or were leveraged, meaning they used borrowed funds to acquire the employer securities held by the ESOP trustee.
- Of the 10,000 employee-owned companies nationwide, fewer than 2% were financially distressed when they established their ESOP.
- Approximately 99% of ESOP Association members are private, closely-held companies.
- ESOPs exist primarily in small businesses – 68% of Association members have less than 250 employees.
- While ESOPs are prevalent in a broad range of industries, approximately 23.4% of Association members are in manufacturing, followed closely by construction (15.3%) and engineering (10.9%).
- Approximately 65% of ESOP Association members report that their ESOPs have been in place for 10 years or more.
- 4% of Association members have companies that are more than 50% owned by the ESOP.
- 6% of Association members offer a supplemental benefit plan in addition to the ESOP including, 401(k) plans, pension plans, and profit sharing plans.
- Research indicates that ESOP implementation results in more information sharing, increased communications, and involvement in decision making for employee owners.
- 3% of ESOP Association members report that motivation and productivity increased as a result of the ESOP.
- Savings from the low layoff rate of ESOP participants was $1.9 billion in 2014, showing that ESOP companies are an investment worth noting.
- GSS figures released in June 2015 found that 1.3% of employees with employee stock ownership, which includes the ESOP model and other forms of employee ownership, said that they were laid off in the last year compared to a 9.5% rate for employees without employee stock ownership.
Contrary to some rumors, ESOPs are not typically formed in an attempt to save a struggling company. In fact, the vast majority of ESOPs are formed by highly successful companies. The ESOP only helps to increase company success as it provides incentive for employees to ensure that the company remains prosperous. Employee-owners of ESOPs typically know more operative and financial information about their company than do employees of traditionally held private corporations, and are often more motivated and productive. After all, the more successful the company, the more financial reward to employee-owners.
Tata & Howard’s ESOP Celebration
This month, employee-owners at Tata & Howard have been immersed in ESOP fun and education. To date, employee-owners have participated in a “Guess the Share Price” contest, a “Guess the Labor Revenues per Employee” contest, a bubblegum chewing contest, a hike, and an ESOP Slogan contest. In addition, employee-owners have been treated to chocolate coin bags, Starbucks coffee breaks, and ice cream socials, and have participated in charitable activities such as a month-long food drive and a special donation to Water For People.
Celebrating the 23rd anniversary of Tata & Howard on October 19, 2015, Tata & Howard employee-owners received their first ESOP share certificates, and proved that they are ready for 23 more. Results from an anonymous survey show that Tata & Howard employee-owners overwhelmingly support the formation of the ESOP, and they have also embraced and conquered fun and educational challenges. The shift to an ESOP has been a positive change for Tata & Howard, and we look forward to many more celebratory Octobers. Happy ESOP Month!