When it comes to employee ownership, ESOPs (Employee Stock Ownership Plans) have often been the go-to choice. And rightfully so — ESOPs have proven their worth over the past 50 years and currently in use at over 5,700 employee-owned companies. They are responsible for helping millions of workers benefit through share ownership and have produced inspiring stories of life-changing wealth. Despite the benefits of the structure, there's a crucial communication pitfall that comes with the term "ESOP" that is holding companies back.
For many people, "ESOP" is another acronym in a sea of business jargon. The term ESOP lacks the familiarity and resonance needed to truly engage. Today just 1% of the labor force currently participates in private-company ESOPs, meaning the vast majority of people have no personal experience. On top of that, someone new to the idea cannot intuitively grasp what’s involved with an ESOP because there is no context that can be gathered from the term. Finally, “ESOP” is not a great jumping off point with a job seeker or employee. If someone is engaged enough to even ask what an ESOP is, the typical response involves concepts like “retirement plan” and “ERISA,” which are not energizing. These issues combine to create a lack of connection that can lead to disengagement rather than enthusiasm.
Luckily there's a more effective way to communicate your company's employee ownership structure: "employee-owned." Employee-owned is an intuitive concept that has positive influence and is already connected to exciting ideas like better compensation and a more employee-friendly environment. It opens up a conversation about how your company takes a different, more people-focused approach. “Employee-owned” speaks to the financial benefits of ownership but also a better culture that matters the first day someone walks through your doors. We’ve long counseled our 680+ Members to frame external and internal conversations around being employee-owned, and we’ve seen it work.
The communication advantage of “employee-owned” over “ESOP” is intuitive, but it’s also grounded in science. I first became interested in public opinion on employee ownership as a PhD student at Stanford Graduate School of Business. I had read research on the many benefits of employee ownership to workers and companies, but was struck by the complete lack of visibility. Why had I never heard of this before? The most recent study on public awareness was decades old, so I decided to run my own survey and found strong interest.
We’ve continued to conduct public opinion research because we see it as foundational to our mission to help our Members share their ownership stories. Our most recent survey illustrates the advantages of “employee-owned” over “ESOP.” In 2022, we surveyed a national audience and asked them a simple question: “You’re thinking about applying for a job and you see this on the job description, how does that affect how likely you are to apply?” When we tested “employee-owned” we found that 23% of respondents were more likely to apply. When we tested “ESOP” we see just 9%. Moreover, 25% said they were less likely to apply for a job at an ESOP company, indicating a net negative influence for “ESOP” but a net positive influence for “employee-owned.”.
Our work is corroborated by the 2018 General Social Survey, which found that 72% of respondents preferred working for an employee-owned company over one owned by investors or the state, irrespective of their political affiliations.
So why does "employee-owned" resonate? To answer that question we conducted a follow-up study. We surveyed a national audience and asked a different question: “What are the advantages of working at an employee-owned company?” Respondents could type whatever they thought made sense and we did a bottoms-up categorization of similar answers. Four themes emerged: increased agency, better compensation and benefits, a sense of ownership, and an employee-friendly environment. This indicates that, contrary to “ESOP”, “employee-owned” comes with many positive associations in the minds of Americans.
Our work demonstrates that “employee-owned” communicates a deeper, more meaningful relationship between the company and its employees beyond just stock ownership. This makes it the obvious approach when communicating with job seekers and current employees. Positioning your company as employee-owned can also benefit your relationships with customers because it emphasizes values such as better service, longer-term relationships, and the advantages of dealing directly with an owner. This can be particularly compelling in industries where trust and personal connections are paramount.
In summary, while ESOPs are undoubtedly valuable structures for employee ownership, the term itself is not great for communication. By shifting the focus to "employee-owned," you can better engage job seekers, current employees, customers, and even your community. It's not just a semantic change, it's a strategic shift that can enhance your company's branding, marketing, and overall appeal in the eyes of stakeholders. So, the next time you talk about your company's ownership structure, remember to lead with what truly matters — being employee-owned.
