Five Things You Might Not Know About ESOP Companies

on Tuesday, October 22, 2013 in ESOP

Since announcing we were becoming an employee-owned company, all of us at TMC have been learning a lot about ESOPs (Employee Stock Option Plans). While the ins and outs of an ESOP can be complicated, the benefit of being an ESOP company is pretty black and white.

Here are five interesting facts about ESOP companies that you might not know.

  1. A Rutgers study found that ESOP companies grow 2.3% to 2.4% faster after setting up their ESOP than would have been expected without it.
  2. According to data provided by the NCEO (The National Center for Employee Ownership), ESOPs are “almost never used to save troubled companies.”  Instead, ESOPs are most commonly used to provide a market for the shares of departing owners of successful, closely-held companies, to motivate and reward employees.
  3. ESOP companies are four times less likely to lay employees off during a recession and historically fair better through a recession than non-ESOP owned companies.
  4. A study of ESOP companies found that the average employee tenure was "significantly longer" than their non-ESOP counterparts and that firms were more likely to adjust wages than the number of employees.  It also found an increase in "job satisfaction, organizational commitment, identification, motivation, and workplace participation." 
  5. The U.S. Department of Labor released data on retirement plans with 100 or more participants that shows ESOPs generally provided a greater aggregate rate of return than 401(k) plans. The average rate of return over the 15-year period from 1996 to 2010 was 6.9% for ESOPs, versus 5.8% for 401(k) plans.