April 20th, 2020
Kyle Coltman, CEO of The Menke Group
On a recent episode of the Daily Social Distancing Show with Trevor Noah, special guest Mark Cuban discussed how to revive the economy in the wake of a global pandemic. Cuban relayed some of the advice he’s shared with President Trump as part of his involvement on the coronavirus task force.
“The things that I’ve recommended initially is to try to push and reward companies that offer equity in their company to their employees,” said Cuban. “The only way that you can get away from living paycheck to paycheck is by having an asset that can appreciate. Whether it’s a home, whether it’s stock in your company, whatever it may be.”
What Cuban describes is an Employee Stock Ownership Plan (ESOP). An ESOP is a qualified plan (similar to a profit-sharing plan) that creates a retirement benefit for employees. Further, it allows the company to take a tax deduction for the ESOP funding and allows shareholders to sell their stock tax-free.
I’ve spent over 40 years promoting employee ownership through ESOPs with Menke & Associates Inc., a company that is employee-owned itself. Here are three reasons I agree with Mark Cuban:
- Nobody washes a rental car – The idea is simple: you’re more likely to take care of something you own versus something you rent. When you own something, you have a vested interest in increasing its value – whether that’s your car, your house or your company. An ESOP links employee efforts with employee rewards.
- Greater productivity, higher profitability – Sharing company ownership with employees increases their productivity. Higher productivity translates to higher profitability, which in turn leads to higher company values. In some cases, a 1% increase in productivity can translate to a 25% increase in company profitability.
- Protect your company in a recession – A 2017 study showed that employee-owned companies weather recessions with greater stability than non-employee owned firms – and that includes maintaining a more stable workforce. Showing your employees you value them sends a message in a difficult time that you care about safeguarding their future.
The easiest and most cost-efficient way to create employee owners is to adopt an Employee Incentive ESOP. In this case study, we examine how our client Ringland Johnson used this strategy to implement an ownership culture and mentality.
There are tremendous benefits associated with a company that is 100% owned by an ESOP, which we call the Succession ESOP. In this case study, we show how our client Basden Steel used our strategy to achieve 100% employee ownership, which ensured their culture and legacy to live on.
Menke & Associates Inc. is the most active firm in the U.S. that fosters employee ownership through ESOPs. To learn more about how an ESOP can help your business, contact us today.
Phil DeDominicis is an ESOP strategist and M&A advisor who has guided 300+ companies through ESOP formations, financing, and transactions over 20+ years at Menke & Associates. He specializes in selling ESOP‑owned businesses to financial or strategic buyers and in helping ESOP companies acquire other businesses.
