Employee stock options can help to secure the financial future of your workforce. But cost anxieties and the lack of information might be holding back participation in the employee stock ownership plan (ESOP). In this article, we discuss:
- The benefits of ESOPs for both employees and employers
- Five ideas to increase the participation rates
- Why the timing couldn’t be better for this benefit
If you get it right, employee stock options can be a pertinent tool to drive growth for your company, as well as being an attractive component of your benefits package. According to The National Center for Employee Ownership, there are approximately 6600 ESOPs in the US today, with over 15 million participants.
If your company provides employee stock options, you need to ensure that the workforce knows all about this benefit and makes an informed decision about subscribing. This makes it vital to have an adoption strategy in place to maximize the benefits of ESOPs.
What Are Employee Stock Options?
First, a quick definition of employee stock options. Formally known as employee stock ownership plans, ESOPs offer employees a share in the company’s profits in lieu of a benefits component. For example, instead of 10% of compensation, employees can choose to receive a specific number of shares. As the value of shares goes up over time, employees can realize a substantial profit.
Starbucks is a great example, with its large-scale ESOP program. Original employees who had joined as baristas have earned several times their investment in share value.
Are Employee Stock Options Good for Both Employers and Employees?
So, why do you need employee stock options at your company? Briefly, there are four benefits:
- As an employer, you don’t need to pay taxes on your contribution to an ESOP plan. Employees don’t need to pay tax on their investment either.
- Employees at a recognized publicly-traded company gain financial assurance for their future, even after they leave the company or retire.
- There are other monetary upsides as well – like job security, better creditworthiness, and a sense of belonging with the company.
- Employees with a direct stake in your company’s future are likely to perform better, as they will reap direct rewards from increased profitability.