3 min read

The Power Of ESOPs

Oct 10, 2018 6:30:00 AM

ESOP - BlogIt is no surprise that Gibson is an avid supporter of and believer in ESOPs and all the benefits they can bring to a company. While there is no such thing as a silver bullet, we believe in the power of ESOPs and the many opportunities they offer to improve a company on so many levels.

An ESOP can offer significant opportunities in:

  • Succession planning/perpetuation of ownership
  • Employee engagement
  • Corporate culture
  • Building retirement wealth

In many instances, owners of small to medium sized businesses work their entire lives to build their company, only to wake up one day and find that they don’t have a viable exit strategy. At that point, having not planned for their exodus, the owner typically feels they have two choices: continue working in their business past the point they really want to, or sell the company to outsiders. At the same time, the company likely has many employees that have been loyal and add value to the business. Why not sell the company to the employees? That’s what an ESOP can do for the owner, the business, and its employees. It can be a true win-win-win proposition.

An ESOP has the opportunity to improve employee engagement beyond current levels. According to Forbes, multiple studies conducted on the business results of ESOP companies versus their traditionally owned counterparts show an advantage for ESOPs (October, 2013). This is due to the unique ESOP model whereby employees feel a sense of ownership because they are owners, and stand to personally reap the benefits if the company performs well. It helps positively change their perspective (I like to call it the “give a ___” factor!)

As you might expect, when employee engagement is higher, the corporate culture tends to be better as well. Culture – now there is a “squishy” concept. How do you know when you have a great culture, or at least one that is getting better? It’s hard to define, but I’ve always believed that it’s something you just know instinctively. During my over 14 years with Gibson, I’ve observed our culture with great interest. I always thought we had a pretty good corporate culture, and we did. But the “mojo” is different, and even better than it was, since we formed our ESOP (the GESOP) in 2010. I can’t give you statistics for our culture improvement, but I know it’s real.

The National Center for Employee Ownership offers the following findings with regard to the financial impacts of ESOPs on employee-owners:

  • ESOP participants made 5% to 12% more in wages
  • ESOP participants have almost 3 times the retirement assets as did workers in comparable non-ESOP companies
  • 56% of ESOP companies have at least one additional employee retirement plan (such as a 401k plan). By contrast, only about 44% of all companies otherwise comparable to ESOPs have any retirement plan, and many of these are funded entirely by employees.

The facts are - and we are seeing this here at Gibson – ESOPs provide an excellent opportunity for employee-owners to establish larger nest eggs for retirement than non-ESOP businesses.

So what does all this mean? Well, when you think of what the GESOP has done for Gibson, it is truly amazing the impact it has had on our firm. We’ve successfully implemented an ownership transition vehicle to provide both continuity and opportunity for our people. Our employee-owners are more engaged than ever, and we’ve seen an improvement in our culture along the lines of Collin’s book “Good to Great”. We’re also helping our employees build financial wealth for retirement much faster than they otherwise would be able to do.

That’s been the power of an ESOP at Gibson. Have you considered an ESOP for your company?

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Topics: ESOP
Gibson

Written by Gibson

Gibson is a team of risk management and employee benefits professionals with a passion for helping leaders look beyond what others see and get to the proactive side of insurance. As an employee-owned company, Gibson is driven by close relationships with their clients, employees, and the communities they serve. The first Gibson office opened in 1933 in Northern Indiana, and as the company’s reach grew, so did their team. Today, Gibson serves clients across the country from offices in Arizona, Illinois, Indiana, Michigan, and Utah.