How Employee Participation and Engagement Drive ESOP Success

Employee Stock Ownership Plans (ESOPs) offer a transformative approach to business ownership by allowing the employees to have the financial benefit of ownership and aligning their efforts with the company’s long-term goals. Research indicates that companies with effective employee participation plans experience faster growth and higher profitability than those without.¹ However, creating a successful ESOP involves more than just having the plan in place; it requires fostering a strong ownership culture in which employees are genuinely engaged and invested in the company’s success. Here, Dan Markowitz, CPA, Partner and Boulay’s ESOP advisory leader, explores how companies can grow this culture and maximize the impact of their ESOPs.

Building an Ownership Culture

The foundation of any successful ESOP is a strong ownership culture where employees understand and embrace their roles as owners. To build this culture, companies must first answer the “whys” that drive engagement. Employees need to know the purpose behind the ESOP and how it can benefit them personally and professionally. Through regular meetings, workshops and events, management can help employees see the connection between their everyday efforts and the broader goals of the ESOP. These touchpoints also stimulate the ‘team’ mentality needed for success, where employees work for each other’s benefit rather than themselves. When employees understand how their contributions impact the company’s success and the ESOP’s value, they’re more likely to make decisions that align with long-term growth.

A key element in building this culture is giving employees a “line of sight” into daily performance. For an ESOP to resonate, employees must be able to directly connect their work to company performance and stock value. Instead of relying on complex financial statements, use clear, relevant metrics to show employees how their efforts make a tangible difference. When employees see the effect of their actions on the company’s success, they’re more likely to become more engaged and committed to acting as true stakeholders.

The Role of Economic Engagement

Employees need a solid understanding of the company’s key financial metrics and how they contribute to its growth. Encouraging employees to engage with customers can be highly beneficial, as it helps them understand what drives value from the customer’s perspective. These insights may lead to better decision-making, innovation and often, increased revenue. Additionally, companies can foster a deeper economic understanding by providing education on how key metrics, like revenue per paid hour, influence financial performance. When employees gain a deeper understanding of how the company makes money, they can make decisions to directly support its financial health and growth.

Sustaining Engagement Through Repetition and Relevance

Sustaining engagement over time requires repetition and relevance. Employees don’t need exhaustive financial details; instead, focus on sharing need-to-know, digestible information that directly relates to the ESOP’s value drivers, benefits and the company’s goals. Using real-world examples like comparing company growth to home equity can help employees relate to the ESOP’s impact more easily. Meetings, newsletters and one-on-one discussions create multiple touchpoints for employees to stay connected to the ESOP’s purpose.

Measuring Economic Engagement

The benefits of high economic engagement in an ESOP are considerable. Research shows that companies with strong economic engagement achieve profit growth rates double those of their peers. Among ESOPs, top-quartile companies demonstrate significantly higher profit growth, highlighting the importance of sustained employee engagement and the value of experienced ESOP advisory in maintaining this growth¹. With the right guidance, companies can use the power of ownership culture to not only boost profitability but also strengthen their resilient, motivated workforce for years to come.

Helping You Get There…

Ultimately, the combination of active participation and economic engagement is the foundation of a successful ESOP. Companies can enhance profitability and empower their workforce by fostering a culture where employees think and act like owners. Regular communication, relevant education and transparent financials drive long-term success for an ESOP company looking to the future. Connect with Dan to learn more about driving economic success through an ESOP and how Boulay’s ESOP advisory team is committed to helping you get there.