Home > Ownership Culture > Articles > Return on Ownership >

Communicating the Financial Benefit of Ownership

Chris Mackin, Loren Rodgers, and Adria Scharf

March 2002

Employee stock ownership plans (ESOPs) can put a sizable sum of wealth into the hands of employees. It is important for managers to bear this in mind in communicating the value of employee ownership to their workforce. How much, in dollar terms, might the ESOP represent? Recent research has taken a hard look at the average value of the ESOP as a benefit. These studies suggest that, while individual account values vary by plan, by tenure, by pay-level and other factors, ESOPs by and large deliver on their promise to transfer wealth to employees.

The Washington State study (Wealth and Income Consequences of Employee Ownership: A Comparative Study From Washington State, Peter A. Kardas, Adria L. Scharf, Jim Keogh, 1998) found that ESOP firms provide their employees significantly higher retirement wealth than similar non-ESOP firms.

More precisely, looking just at ESOP assets, the average Washington ESOP participant account value was worth $24,260 (based on 1995 information). The average value of all retirement benefits in ESOP companies was $32,213. That's much higher than the average pension holdings of $12,735 in the comparison companies.

The Massachusetts study ("Census of Massachusetts Companies with Employee Stock Ownership Plans," Adria L. Scharf and Christopher Mackin, 2000) pursued a simpler research design, analyzing only ESOP assets (not total pension wealth).

The Massachusetts study found that:

The per participant wealth held for employees in Massachusetts ESOPs is $39,895 (based on 1999 information).
Average ESOP participant holdings range from $0 to $396,000.
Twelve percent of ESOPs have average participant accounts worth over $100,000.

So how can the wealth benefits of employee stock ownership best be communicated? Here are some tips:

1. Use the Wealth Data

Make sure people know how much value people at other companies have in their ESOP accounts. The data in this article could be a good starting point for charts on your company bulletin board.

2. Use Other Methods

Successful companies have used past ESOP account patterns, interactive spreadsheets, and seminars to give employees a sense for how much money their ESOP accounts may be worth.

3. Don't Oversell

The company should never be perceived as making any kind of commitment about the future value of the stock or ESOP accounts. Remind people that it is a long-term retirement account, and don't deny that the ESOP involves a degree of risk.

4. It's Not Just Money

Especially if your company is working to build an ownership culture, remind employees that there is more to the ESOP than dollar value. The ESOP is also part of making the company a place where people want to work, where their voices are respected, and where they feel like an owner.

Excerpted from ESOP Report, January 2002

Firm description and list of other columns in this series

^^Top of Page