5 Reasons Why an ESOP Leads to Better Business Productivity

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5 Reasons Why an ESOP Leads to Better Business Productivity

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5 Reasons Why an ESOP Leads to Better Business Productivity

By , November 23, 2020
employee engagement and retention - Succession Plus

Productivity is what every business owner wants, and the best way to increase productivity is to strengthen your employee’s commitment to your business. When designed and implemented properly, an ESOP should be a win for all existing owners, employees, customers and suppliers. Here are 5 reasons why an ESOP leads to better business productivity.

1. Better Employee and Business Alignment:

Better alignment between employees and business owners (because they both own shares in the same company) will ensure a common interest, a focus on common goals (most importantly growing the equity value of the business over time), and a reduction in the typical tension between “us and them.”

2. More Employee Productivity and Efficiency

Employees who are far more engaged and involved in the business are typically more productive and efficient. The academic research says productivity improvements of somewhere between 7% and 23% are common in employee-owned businesses.

3. Generous Tax Concessions

The generous tax concessions which accompany employee share ownership plans in Australia allow employees to earn more (in a more tax-effective way) without costing the company any more money. Therefore the share plan can be used to attract and retain better employees at a pricing advantage in the labour market.

4. Better Staff Retention and Career Pathways

Businesses with a succession plan are typically able to retain staff and provide them with career pathways and opportunities more openly than those without. By nature an employee share plan includes a succession plan; employees are able to purchase equity in the company they work for, and as older employees leave, new employees can “ take their place”. The opportunity for employees to become more involved in corporate governance and senior management roles is also better in employee-owned businesses.

5. More Aligned with Consumer Conscience

Consumer research has also shown that customers are more likely to buy from and are happy to pay a higher price to employee-owned business due to the perception that the quality and service standard will be much higher for employees that own the business. In this case, through the employee share plan, the company has a considerable competitive advantage over competitors.

 

Want to know more about how an ESOP can help your business?

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Craig West

Craig West

Managing Director | Succession Plus

Craig West is a strategic accountant who has over 20 years’ experience advising business owners. His background as a CPA in public practice, provided invaluable experience in the key issues of concern to business owners. Following 6 years of study to gain two masters degrees, Craig focused on Capital Gains Tax (CGT) for business sales advising on strategic management of tax issues. This experience formed a very strong view that business owners (and often their advisers) were unprepared and unaware of the steps required to prepare a business for exit.

Craig now acts as a strategic mentor for mid-market business owners and has written four critically acclaimed books on employee incentives, succession planning, asset protection and exit strategies. Craig has conducted numerous seminars and keynote presentations throughout Australia & internationally, including adviser education programs for the Institute of Chartered Accountants and CPA Australia.

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