How to implement an Employee Share Ownership Plan (ESOP) within your Mid-Market Business

Based on feedback from our clients over the last 10 years, the primary outcome is to establish an Employee Share Ownership Plan (ESOP) that:

• Provides long term incentives for employees to increase profit and cash flow surpluses;
• Rewards the efforts of existing employees;
• Attracts, motivates and retains valuable employees;
• Makes a viable exit mechanism available for existing/founding shareholders wishing to retire or leave the business;
• Provides a structure that manages an orderly introduction of equity owners into the business, if and when required;
• Funds and structures key employee involvement in the growth of the business; and
• Aligns the interests of employees and owners.

Implementation normally occurs over a three-month period after Succession Plus conducts an initial and complete business review (Business Insights Report) to ensure the program is the most appropriate solution and incorporates the various optional features within the ESOP to best suit your needs.

Whilst the technical aspects can be handled quite quickly and the legal documentation is not too complicated, a typical implementation timetable is as follows:

The academic research is quite clear, Employee Share Ownership Plans work – but they are even more effective when they are accompanied by employee engagement programs such as Ownership Mindset: educating employees on what it means to become an owner, how they can contribute and engage and provide a better understanding of what it means to become an employee-owner.

A detailed implementation breakdown is below:

Stage One – Business Insights Report

Our Business Insights Report is a comprehensive report which contains:
• A business structure review;
• Details of Capital Gains Tax issues on exit;
• Financial analysis – including trend analysis, breakeven and safety limit, cash flow, credit access and detailed industry benchmarking;
• Non-financial analysis of key operational aspects and risks;
• A detailed valuation report and methodology;
• A sales readiness and attractiveness index; and
• Any issues raised by the due diligence review and any opportunities highlighted.

The report will then be presented through a face-to-face workshop with participants of your choice.

Stage Two – Establishing the ESOP

Stage two involves:
• Setting up a tailored Peak Performance Trust Deed or an appropriate alternative vehicle tailored for your business
• Arranging an Agreement between the parties (between the Company/ Shareholders, the Trust and employees)
• Producing an Employer and Employee Handbook (manual) that shows how the ESOP works and contains forms and documents required to operate the ESOP
• The delivery of an educational seminar for staff; and
• Support service during implementation – attending to phone/email queries

Stage Three – Ongoing Services

Ongoing services are available following the creation and implementation of the Peak Performance Trust or alternate vehicle and are important to ensure the ongoing success of the plan.

These services include:

• Ongoing Maintenance – unit registry, changes to employee/employer details
• Annual Review and Report – updated valuation, calculation of bonus dividend/profit share
• Annual Statement to Members – including valuation of units
• The ongoing revision of changes in legislation and updating of trust deed/ documents as required
• Advice/Queries as required throughout the year
• Online access to our ESOP management platform

Ready to embark on introducing an ESOP into your mid-market business? Get in touch with us today to engage an expert business adviser.

Dr Craig West

Founder & Chairman | Succession Plus

Dr Craig West is a strategic accountant who has over 20 years of experience advising business owners.

With a background as an accountant in practice and two master’s degrees, Craig formed a strong view that the majority of business owners (and often their advisers) were unprepared and unaware of the steps required to prepare for exit. He then designed and documented a unique 21-Step Business Succession and Exit Planning process to assist owners and their advisers in navigating this process.

Craig now acts as a strategic business and financial mentor for mid-market business owners. Craig has written four critically acclaimed books educating business owners on employee incentives, succession planning, asset protection, and exit strategies. Additionally, he has completed doctoral research on Employee Share Ownership Plans (ESOPs) for succession.

Craig is a Member of the Forbes Business Council where he leverages his extensive experience to contribute valuable insights on helping business leaders navigate the complexities of growing and exiting their businesses.

In April 2024, the Exit Planning Institute admitted Craig to the International Exit Planning Circle of Excellence.