March 31, 2020

Assessing the Benefits of ESOPs

When Pride & Service Elevator, a family owned business recently became a 100% Employee Owned Company Through an Employee Stock Ownership Plan (ESOP), it caught the eye of the Editorial Staff at TecHRseries.

Given that the company is a family owned business – it was interesting for us to speak to the President of the company to understand how and why the idea of ESOPs first came about for him. Christopher Todd, President at Pride & Service Elevator responded saying, “This was a very difficult decision to make as I have four children ranging in age.  I really respect the people that work for Pride & Service Elevator and wanted to maximize their wealth potential so I decided to go all in with the 100%.  If my children want to enter this business one day I will provide them with the necessary skills to succeed as well.  Also the company will benefit greatly as it will become 100% income tax free.  This  will create numerous opportunities for Pride & Service over the next few years.  Opportunities that our competitors will not have.”

Read More: How HR Can Create and Sustain a Culture of Performance

By definition, Employee stock options (ESOs) are a kind of equity compensation granted to employees or high level executives.

An ESOP gives workers ownership interest in the company. This might be a great gesture for long time staff or those who have brought in a certain degree of expertise to the company.

Companies often use ESOPs as a core strategy to align the interests of their employees with those of their shareholders.

Are ESOPs Good-to-Have in Tech?

When it comes to ESOPs for the B2B/Tech sector Christopher comments, “I think the idea of an ESOP is great for any midsized company that doesn’t want to sell and exit the business.  The ESOP allows the company to stay in business while rewarding employees at the same time.  Everyone wins when the company grows and is profitable.  It also can be effectively used as a succession plan for majority shareholders where the next generation is not interested in the family business.” 

While it has been a common norm for leading tech companies like Amazon to offer employees stock options, one doesn’t often come across family-owned businesses following suit. According to Christopher, more (B2B/Tech) companies should offer employee stock options to their staff because, as he says, “there is power in numbers.  If all employees think and act like owners then the business will flourish.  There are many studies of company performance before and after the ESOP transaction.  The results show that after the ESOP transaction top line and bottom line grow exponentially in comparisons to results before the transaction.   When the mindset is changed everyone benefits.”

Read More: TecHR Interview with Doug Dennerline, CEO at Betterworks

ESOPs become part of an employee’s remuneration package, companies often use ESOPs to keep participants focused on overall corporate performance and share price appreciation. These plans encourage participants to do what’s best for shareholders.

There are various other versions of employee ownership. When it comes to ESOPs though, here are Christopher’s takeaways for those who are implementing the model for the first time:

  • I would suggest that they do their homework.  There are many ways to implement an ESOP.  Every company is different and they must tailor one that works for their particular culture.
  • When you start to look into ESOP’s you will find out that there are approx. 7,000 companies across the USA that have converted to some sort of ESOP model. Some chose to do 100% while others carved out a smaller percentage for the employees.
  • Throughout my process, I was inspired by Clif Bar and Company as well as Lerch Bates consulting.  Both companies have a large footprint across the globe and still decided to give back to the employees.  To me, that says a lot!  It shows that even large companies believe in the power of the people.   Clif Bar has a really powerful video about employee ownership on their website.  I must have watched it 10 times throughout the process.

Read More: Employee Benefits – The Only Thing on Everyone’s Mind?

While summarizing this change in company structure, Christopher ends on a good note saying, “As I told my employees, if we can dream it we can achieve it.  We now have a model that can help us open branch offices in all of the major cities across the USA.   We have a sizable footprint in the NYC metro area and over the course of the next few years I would like to see us open an office in two additional cities.  Our employees are incredibly excited about their future and we are already getting calls from our competitions employees as they want to be a part of this great organization.   I look forward to my role as President of Pride & Service Elevator and to the future success of this company.”

Thanks for your time and especially your thoughts Christopher!

About the company:
Pride & Service Elevator, Inc. has been maintaining, modernizing and repairing elevators for 36 years throughout New York and New
Jersey.

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Paroma Sen

Paroma serves as the Director of Content and Media at TecHRseries.com. She was a former Senior Features Writer and Editor at MarTech Advisor and HRTechnologist.

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