With 2023 coming to a close, and year-end planning looming large for many businesses, a number of media outlets highlighted the value of building robust succession strategies. CSG's experts weighed-in on the utility of employee stock ownership plans as transition tools. Read ahead for articles and podcasts featuring their insights.
Manufacturing Engineering Quotes Michael Bannon and Jordan Burg
Proper (Succession) Planning Promotes Progress
“An ESOP enables owners of a privately run company to have a liquidity event while maintaining the company’s independence and creating a meaningful, wealth-building incentive for employees,” says Jordan Burg, chief marketing officer of New York City-based CSG Partners.
“In addition to a liquidity event, many ESOPs are structured to address long-term shareholder and corporate objectives that may include succession planning,” Bannon says.
According to CSG Partners, ESOPs are well-suited for manufacturing companies because these plans align the interests of employees with the company’s success, fostering a sense of ownership and commitment that is crucial in the industry. ESOPs can drive productivity and quality improvements, proponents note, as employees with a stake in the business are more motivated to enhance processes and product quality.
"From a company's standpoint, an ESOP is a succession planning tool. It gets equity in the hands of your employees... and every eligible employee participates in that plan on day one."
"The great thing from an employee standpoint is, unlike a 401K plan, it has zero impact on their W-2 compensation. It's not as if an employee has to say, 'I want to set aside 5% of my compensation for this ESOP plan.' Instead, it's a free benefit."
"Whether you're looking to retire, maybe you have kids coming up in the business, or you have a management team that's going to take over, we want to understand those objectives so that we can tailor an ESOP transaction around those objectives."
Incentives Fuel Growth of Employee-Owned Businesses in Colorado
ESOPs are typically formed to facilitate succession planning in closely held companies by allowing employees the opportunity to buy shares of the corporate stock as an incentive.
Colorado companies like construction firm G.H. Phipps have been using the employee-ownership model for decades, but Gov. Jared Polis made employee ownership a state priority by declaring an executive order in 2019 to use state resources to advance the goals of encouraging more employee ownership of businesses.
Larry Kaplan, founder and managing partner of CSG Partners, a New York-based investment bank that helps businesses with the complicated process of converting to an ESOP model, said that Colorado's status as a leader in employee-owned businesses is well-deserved.
“Other states have done things but nowhere near to the extent of Colorado,” Kaplan said. “As a company, we're going to open an office in Colorado and that is largely due because of the government incentives that the state is providing.”