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Businesses with Employee Share Plans grow faster

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Businesses with Employee Share Plans grow faster

By , January 18, 2021
Employees discussing strategy at coffee table

There is a large volume of academic research which studies the effect an Employee Share Ownership Plan can have on employees, business performance and growth, nearly all of it positive.

As far back as 1970, researchers started to publish articles which stated that ESOP firms grow at between 7 and 23% faster, they have reduced sick days and unexplained leave, they retain employees at far better rates and they also have improved productivity and profits. In 2003, Blasi examined 70 research studies and summarised the findings:

Performance Measure Gain from Employee Ownership
Average employee ownership 8% (after dilution)
Productivity 4%
Return on Equity 14%
Return on assets 12%
Profit Margins 11%

These improvements are substantial, we regularly see business coaches talking about the effect of 1% improvements!

More recent studies in Australia, show a 94% growth rate in sales and a 56% growth rate in value-added per employee over 3 years, as compared to 62% and 29% for SME’s without employee ownership.

Importantly though, one of the key aspects is to make sure the plan involves and includes employee education and participation. This does not mean handing over control, but rather utilising the skills, knowledge and experience of employees to help drive performance, given they now have a vested interest in adding value. The design and implementation are critical here. At the end of the day an ESS scheme is only a legal document/s, education and “ownership mindset” is what will really make the ESOP thrive.

This is supported strongly in the research, several studies showing the combination of employee involvement/engagement/participation will greatly improve ESOP performance. Many also talk about a staged approach and a gradual introduction – similar to our ladder to equity approach. Involving the key employees in the process and “teaching” them the tools to think and act like business owners is critical to success.

For more information on how to de-risk your business in the current economy, get in touch to speak with a Succession Plus business adviser.

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