Companies looking to innovate may invest in research and development or hire outside consultants for ideas. However, one source of innovation may come from a resource the business already has. Employees and workers may understand the industry as well as the strengths and weaknesses of the business better than a consultant who only gets a brief look at the company. Giving workers a personal interest in the company's success through employee ownership may help spur this type of innovation in a variety of industries.
One way of structuring an employee-owned company is through an Employee Stock Ownership Plan (ESOP). An ESOP is a type of qualified retirement plan that invests in employer securities. Employees get stock of the company as a retirement benefit which can later be cashed out by the ESOP or sold back to the company when the employee retires. There are a number of tax advantages that go along with ESOPs benefiting workers and the owners selling the company to an ESOP.
Can Employee Ownership Help Your Company Innovate?
A recent Forbes article looked at one company's experience with employee ownership and how the CEO believes it led to unique innovations and cooperation. Jeff Taylor is the CEO of Crafts Tech. Crafts Technology is a tooling company that produces precision wear parts, components, and assemblies for industrial equipment. With a history dating back to the 1800s, the company was purchased by an ESOP on behalf of its employees in 2013.
According to Taylor, the company underwent a 3-step process to prepare the business for the future, starting with transitioning to an ESOP. The second step included identifying new opportunities as problem-solvers that allowed the company to own the intellectual property in their technological advances. The third step involved engaging with the workers and crediting those with their ideas.
Taylor sees innovation as a collective process and began crediting each contributing member of the team on the patent filing, even for the smallest contribution. As a result of these changes, the company has doubled sales in the past 5 years while keeping costs down.
A study in the New England Journal of Entrepreneurship, “Does employee ownership increase innovation?” suggests that employee stock ownership “positively moderates the relationship between R&D intensity and innovative output” through “motivation and commitment to the innovation agenda of the company” and ownership retains workers' entrepreneurial efforts for internal opportunities.
Recognizing Innovations in Employee Ownership
Innovation can even come through employees educating and communicating the benefits of their own employee ownership plan. The National Center for Employee Ownership (NCEO) administers the Innovations in Employee Ownership Award, which is “designed to recognize employee-owned companies that have demonstrated a commitment to promoting employee ownership and innovation in their workplaces.”
In 2019, GISinc won the award. GISinc is an employee-owned geographic information system company based in Alabama. Employees for the company put together a series of creative and entertaining videos to communicate various aspects of employee ownership and ESOP benefits for new workers.
San Diego ESOP Law Firm
If you have any questions about how employee ownership can help your business prepare for the future or if an ESOP is the right succession plan for retirement, Butterfield Schechter LLP is here to help. We are San Diego's largest law firm focusing on employee benefits and ESOPs. Contact our office today with any questions on how we can help you and your business succeed.
