Employee Stock Ownership Plans as a Strategic Benefit

 By Otto Lange

Companies that care for their employees benefit from improved employee retention, competitive advantages, and superior financial performance. Today, employee ownership is no longer just a catchy term that differentiates businesses, but rather a strategic opportunity that benefits stakeholders. Recent business and political events may indicate a shift toward companies being employee owned.

Two days before the U.S. Presidential Election, Ford Motor Company, GM and other large corporations with Detroit factories announced they would keep operating in the U.S. rather than move their facilities to Mexico. Subsequently, President Trump immediately took credit for this announcement on Twitter, and reaffirmed his commitment to blue-collar workers of America. From his perspective, these large auto makers would increase mechanic and factory jobs in Detroit by hundreds—if not thousands.

On January 3, 2017, however, Ford Motor Company announced details about their plan to remain in Detroit. They would invest $4.5 billion to revamp their U.S. operations, and invest in electric car production. Ford also stated they were seeking to hire 700 employees in Detroit.

The irony? Rather than hiring for manufacturing jobs, Ford is looking to hire hundreds of highly specialized scientists, data analysts, product designers, computer programmers, and technical engineers from around the country. No blue-collar jobs.

So the question remains: how does this relate to employee ownership?

If Ford’s decision to remain in Detroit is any indication of the future business environment molded by President Trump’s America-first trade policies, then competition for highly educated scientists and specialized engineers will become fierce.

Pedigreed engineers from top universities will be highly sought-after by multinational corporations (MNC) with decades or centuries of history and global brand recognition. Holding the title of “econometrician,” “embedded software engineer,” or “design engineer” at a Fortune 100® company would be appealing to early-career job seekers looking to pad their resumes. Additionally, receiving stock grants and options from a publicly traded company would be more valuable to employees compared to identical compensation packages at smaller, privately held companies offering illiquid shares.

Privately held businesses have some options to differentiate themselves in job seekers’ eyes. Rather than challenge these MNCs directly in the job market, employers should seek to differentiate their compensation packages from the standard employee offerings.

Small- to medium-sized businesses competing against Ford, GM, Lockheed Martin, etc., will be forced to pay premiums to attract and retain great employees. This premium may be in the form of higher salaries, but could alternatively take the form of employee ownership plans that would simultaneously offer substantial benefits to the employer. Offering employees ownership of a company and establishing an employee stock ownership plan (ESOP) to improve shareholder liquidity could prove advantageous.

If you or your company are seeking ways to improve employee treatment and retention, then it is recommended that you research ESOPs to determine:

  1. If an ESOP is a feasible option for your company.
  2. If your company’s goals could be met by establishing an ESOP.
  3. How an ESOP might improve your current company’s performance.

Please visit the National Center for Employee Ownership website (http://www.nceo.org/) for additional information.  If you have any other questions or believe an ESOP may benefit your company, please contact the Beyster Institute (http://rady.ucsd.edu/beyster/) for assistance.

otto lange

Otto Lange, graduate student associate, Beyster Institute and Rady MBA candidate 2018

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