ESOP: Sharing the Wealth

You may have heard the phrase “employee owned,” but what does it mean? An Employee Stock Ownership Plan (ESOP) is a retirement benefit plan for employees, to which employees do not have to contribute out of their own pockets. All distributions into employees’ ESOP accounts are managed by a Trustee and are made solely by the company, based on the company’s share value each year. Companies that are 100% ESOP do not trade their stocks publicly; instead, the stocks are invested in the company. Because company profits are shared among employees, each employee “owns” a portion of the company. Therefore, employees of ESOPs are often referred to as “employee owners.”

CarePro Health Services “went ESOP” in January 2004. CarePro is a closely knit company- it began as a 7-person partnership. As some of the partners were nearing retirement, they weighed their options. They could sell the company and divide the profits, or they could invest in the future of the company they helped build by implementing an ESOP. The partners decided to become a 100% ESOP, which means they effectively sold the company to CarePro’s employee owners.

Choosing this route allowed the partners to know that the employees they’d come to know like family would be in good hands, and that their company would continue to grow in the direction they’d set for it years before. Katie Dostal, the Account Specialist for CarePro, has been with the company 14 years. Dostal said the change to ESOP was stimulating for the employees. “It was very exciting to know we were becoming employee owners in our company,” Dostal said. “It gives you so much pride to know that what you do on a daily basis really makes a difference.”

The switch to ESOP also opened the door for education about personal accountability and importance. Chris Nichols, Marketing Director at CarePro, said, “It was an opportunity for the employees to have a better understanding of what happens within the company. It was also a time for employees to take ownership in the role they play and take pride in the work they do for CarePro.”

ESOPs benefit both the company and the employee owners. Employee owners are generally highly engaged employees because they see how their individual roles affect the company’s profits. Numerous studies have shown that the more engaged employees are, the better they will care for their customers. Happy customers are loyal, and they refer the company to friends and family, thereby increasing the company’s profitability.

ESOP benefits the employee owners because the harder they work to increase sales and control costs, the higher their stock or share value increases. The higher the share value, the greater the contribution to their ESOP accounts. Each year, the ESOP Trust allocates money into individual employee retirement accounts. The amount deposited is dependent upon the stock (share) value of the company.

ESOP is complex in many ways. There are different types of ESOPs, and all of them have strict rules by which they must abide. In general, ESOP can be summed up as a retirement plan that allows carefully regulated tax exemptions, keeps jobs and company operations within the community and rewards long-term employee loyalty. For more information about ESOPs, explore the information on The ESOP Association website.