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If you think all the talk of a labour shortage is nothing but hype, then consider the following facts. First, the CEOs of Canada’s Emerging Growth Companies recently said that a shortage of qualified workers is their single biggest external obstacle to further growth of their businesses. Second, research by the Canadian Federation of Independent Business shows that talent shortfalls are affecting entrepreneurs in all areas and industries — not just coffee shops in Alberta boomtowns. And finally, Generation Y — those workers born in the 1980s and 1990s who are notorious for their lack of loyalty to employers — now accounts for at least 19% of the workforce.
Clearly, any company that wants to thrive needs to place more emphasis on retaining good people. But many firms need help. “One of the things that entrepreneurs have to do a bit better is making employees feel a part of the organization,” says Mike Salveta, managing partner of Pivotal Managed HR Solutions. “That is why people stay with a company.”
Employee share-ownership plans (ESOPs), which formalize the process by which staff members purchase or are granted shares in their firms, are a highly effective management tool, for one obvious reason: staff are less likely to leave a company if they own a piece of it.
But there are other benefits to employee ownership. The largest study of ESOPs, conducted in 2000 by researchers at Rutgers University, found that ESOPs increase sales by 2.4% per year over non-ESOP companies. And according to the Oakland, Calif.-based National Center for Employee Ownership, employee-owned firms enjoy 4% to 5% annual productivity gains in the first few years after they employ an ESOP, double that of companies that aren’t employee-owned. Not surprisingly, almost half (47%) of Canada’s Fastest-Growing Companies run ESOPs.
But ESOPs have added value in an era in which more than 300,000 Canadian entrepreneurs have indicated their desire to sell their companies over the next 10 years. That’s because ESOPs create employee shareholders who will be in a better position to acquire majority ownership when their entrepreneur employer wants to exit the business.
“ESOPs attract and retain people, and they can be used in transition planning,” says Perry Philips, president of Thornhill, Ont.-based consultancy ESOP Builders. Combine the labour shortage with the coming succession crunch, and you have “a perfect storm for the use of ESOPs.”