October 2011 Employee Ownership
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Employee Ownership

By Steve Strauss. ARCHIVE:

There are a lot of great things to be said for my pals at Greatland – excellent products and superior customer service to name just two – but another cool thing they also do that may not be well known is that it is a company owned by the employees.

Not surprising.

One thing I have noticed over the years is that a trait shared by the great, most successful businesses is that they often give employees a stake in the business; an ownership share. As such, rather than a company being just another place to work and draw a salary, a small business that an employee partially owns makes that employee a committed entrepreneur. As a result, they usually are more motivated, more dedicated, and more conscientious.

It’s a smart plan for any small business owner to consider. Of course, you could simply create a 401(k) plan that supports your employees in buying company stock, and many businesses do that, but beyond that, there are three other types of stock ownership plans that you could implement:

1. Stock Options: Here, your business awards the option to buy company stock at a specified price, and the employee then has a certain amount of time to exercise the option and become a part owner of the company. Approximately 10 million employees in business both public and private hold stock options at any one time.

2. Employee Stock Ownership Plans (ESOP): These are a sort of retirement plan akin to a 401(k), although in this case, instead of creating a diversified portfolio, with an ESOP, the retirement funds are invested in the stock of the employer.

Under this scenario, the company contributes cash to buy its own stock (usually from the owner) which is then shared among the employees. There are significant tax benefits available under this plan. It is estimated that about 8 million employees invest in ESOPs.

3. Employee Stock Purchase Plans (ESPP): These allow employees to buy stock at a discount (usually around 15%.) The employee can then either sell the stock for a profit, or simply hold onto it.

While it is true that an owner would be giving up part of their equity to create some sort of an employee stock ownership plan, the benefit is that in the process you will be creating a more motivated workforce.

For more information on creating some sort of employee stock ownership plan, contact the National Center for Employee Ownership at 510-208-1300 - NCEO.org.