Why an ESOP Should Be Part of Your Employee Engagement Strategies in Response to COVID-19

COVID-19 has been damaging to employee morale. A 2020 survey of Australian employees by group insurer MetLife found that:

• 78% of employees currently feel stressed;
• 78% of employees located in the physical workplace feel exposed to COVID-19/at risk of getting sick when doing their job;
• 50% of employees feel more stressed now than they did before the pandemic; and
• 50% of employees are living with a mental health issue related to COVID-19.

Suppose your company wants to implement successful employee engagement strategies but has limited cash to pay bonuses or increase salaries. In that case, an Employee Share Option Plan (ESOP) can be an effective solution.

Research shows that Australian companies with employee share plans experienced higher staff retention rates and increased productivity. Also, companies in the US have used ESOPs to boost employee morale, loyalty and retention despite the challenges to morale as a result of the COVID-19 pandemic. Let’s take a deeper look at how an ESOP could help your company boost employee engagement and morale, even in the face of COVID-19 uncertainty.

Understanding Employee Share Option Plans

An Employee Share Option Plan (ESOP) gives employees the opportunity to purchase company shares at a future date for an agreed price. ESOPs differ from Employee Share Award Schemes (ESASs) in that they give employees the option to buy shares instead of simply enabling them to purchase those shares outright.

How ESOPs work to help boost employee engagement and morale

One of the fundamental mechanisms behind the success of ESOPs as an employee engagement tool is the concept of ‘ownership culture’. Essentially, ESOPs allow employees to become part-owners in the company they work for. As a result, employees are more likely to be invested in the long term success of the company because they will be able to enjoy increased share prices and dividend payments.

The Australian Share Ownership Index (EOI) 2016 compared the share price of listed companies with high levels of employee ownership to their ASX200 counterparts. It found that “employee-owned companies command a 17% share price premium”. What’s more, “they are twice as likely to show clear evidence of equal opportunity systems… and outperform or match the ASX200 in 3 out of 5 social sustainability factors.” Both of these factors can make companies more attractive to responsible investors, according to one expert.

Another way that ESOPs work to help boost employee engagement and morale is by fostering employee psychological ownership over the company. It’s not just about having a financial stake in the company. In 2020, a Rutgers University analysis of employee attitudes towards ESOPs found that “employees with greater psychological ownership are less likely to leave and experience burnout.”

ESOPs can be a win-win for both employees and employers

In short, ESOPs benefit employees by:

• being rewarded and compensated for their efforts which helps them feel valued and respected within the organisation;
• potentially improving their financial position through dividend payments and profit from selling shares. This may, in turn, help to reduce employee anxiety around finances as a result of the COVID-19 pandemic; and
• giving them a sense of psychological ownership over the company they work for, which means they are more likely to be satisfied with their job and less likely to experience burnout.

Employers benefit from ESOPs by:

• being able to reward high performing employees without impacting cash flow;
• attracting higher quality employees;
• using it as a successful strategy to enhance retention, which may even indirectly help to reduce absenteeism;
• building loyalty; and
• experiencing sustained growth and increased company performance.

ESOP implementation considerations

While ESOPs have many advantages for both employers and employees, they can be challenging to implement without the right tools and expertise. It’s why we prepared a guide to implementing an ESOP so that your company can start enjoying the benefits.

Paramount to ESOP success is communicating the plan’s value to employees. Using a well-designed ESOP software solution like our platform EmployeeServe, can really help. It makes it easy for staff to accept offers, keep track of their benefits and exercise their share options, which means they are more likely to find value in an ESOP.

However, it’s important to factor in one of the most significant ESOP implementation challenges before your company starts the design process. You must ensure that your company has adequate resources to administer the plan. There are a wealth of administrative processes required to effectively implement and maintain an ESOP, including:

• offer management;
• vesting management;
• participant information record-keeping;
• participant liaison regarding plan mechanisms;
• leaver management; and
• regulatory reporting.

Instead of allocating in-house resources to do the time-consuming ESOP admin work, our dedicated employee share plan team here at BoardRoom can take care of it all for you. Our systems and processes are entirely flexible, allowing us to tailor a solution to meet your needs.

Need help implementing an employee share option plan?

At BoardRoom, we use leading technologies and a panel of experts to guide you through implementing and administering your ESOP. Our systems and expertise ensure the process is seamless and worry-free.

It’s why so many of Australia’s largest employers have chosen us to implement and manage their Employee Share Option Plans.

Speak to our team of experts today to get started on implementing an ESOP in your company.

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