In today’s article, we’re talking about another approach to Business Owner’s exit strategies: Employee Stock Option Programs (ESOP). In this approach, the owner sells the business, or some part of it, to the employees who then become the collective owners of the company they work in. This option gives the owner the double-win of successfully transitioning out of the business while rewarding long-time employees with the opportunity to own the business they’ve already worked to build. 

Our long-time client, Landry’s Bicycles of Boston, became an Employee-Owned business in January 2022—their 100th year of business. An employee of Landry’s describes ESOP as “one of the most difficult ways to exit your company, but assuming you've got the guts for a long tail, it has a lot of benefits.” This decision resulted from a 5+ year labor of love led by Tom and Peter Henry. 

This approach, however, requires specific disciplines and several legal requirements that must be met. This approach is only for some. All ESOPs are not successful. But for those that succeed, the long-term benefits are wonderful. The largest ESOP in the US is Publix Supermarket (they’re in my neighborhood and my favorite!). If you shop with Publix, you can quickly see why an ESOP can be successful. Employees are more accountable for their jobs and their co-worker's job performance simply because they hold a stake in the company's success.

Here are a few thoughts and considerations:

1. An ESOP can help you attract and retain highly talented performers. Achievers love the idea of accountability and reward. While they might not be able to start their own small business, joining an ESOP with the option to become an owner is highly motivating. 
2. The ESOP program can give employees a clear path to long-term wealth. As the company succeeds, the stock price grows, and the employee-owners can create significant wealth for themselves and their families. 
3. In many cases, there are meaningful tax benefits for both the company and the employees. In some cases (do your research!), a company's contributions to the ESOP pool can be tax-exempt or tax-deductible.
4. Announcing an ESOP plan can ease the anxiety of an ownership transition. Many owners are reluctant to announce plans to sell—fearing a mass exodus of good team members. What better way to retain them than to create the win-win of transitioning the ownership to the team!?
5. The legal structure of an ESOP requires that you manage the ESOP. This requires training, knowledge, and time. Additionally, there are significant costs to initially setting up the program. Budget well.
6. In all honesty, the employees who become owners must understand that the ESOP benefits are over the long term. This approach is not a get-rich-quick approach. Hard work, patience, and determination will be the attributes that win the day for the ESOP owners. 

Realize this: business ownership is not for everyone (nor the faint of heart!). This decision may not be a fit for all employees or current owners. But for those who’ve done it, there are real rewards to enjoy. 

If you have an interest in pursuing this path, you should start here: The National Center for Employee Ownership. www.nceo.org