Employee Retention Strategy: Powering Human Resources for the Long Haul

The way business ownership is most commonly structured in Australia today is much the same as it was in the earliest days of the Industrial Revolution. The owner of the business determines how the work is to be done, takes the financial risk, and reaps the financial rewards — along with their investors or shareholders. Employees do not own the machines or processes, they work and are paid an agreed salary that’s (hopefully) enough to retain employees. However, it’s not the only way to structure an organisation.

Before the 18th Century, most people in Europe worked either as farmers, artisans or in guilds, making hand-crafted goods to sell to merchants or at markets. But as Henry Ford and others demonstrated, the power of a business is in its scalability and repeatability that lead to efficiencies one couldn’t gain alone.

But as Australia has moved away from a mostly agricultural and manufacturing economy to a knowledge and service economy, those doing the work are also looking for career development and to share in the wealth created. The act of becoming an employee shareholder, where employees own shares in their company, is not only financially beneficial to the employees.

Employee ownership can significantly impact various aspects of Human Resources (HR), being a positive influence on employee behaviour, motivation, retention, and even the overall company culture.

One of the world’s wealthiest men (at least in democratic capitalist states), Warren Buffet, agrees that the ownership mindset is good for business:

“Managers thinking like owners is my dream.” – Warren Buffett

So, employees are looking for more money and a better work-life balance, and owners want to boost employee retention, increase engagement, and become a powerhouse of innovation. There’s a solution that suits both, so read on to explore the impacts of employee share ownership plans in detail.

Employee Motivation and Engagement

Owning shares in the company in which one works reinforces the commitment towards the company and acting in its best interests for growth, which can significantly boost employee job satisfaction. Employees engaged in an ESOP often report feeling more motivated to contribute to the company’s success now that they have a direct stake in its financial performance.

Share ownership enhances employee engagement and morale. Employees typically feel more valued and integral to the company, creating a more positive workplace atmosphere. The metrics of increased sales going up don’t just make the sales team and owners smile — the wider team is invested in the journey towards better. This sense of value and inclusion can improve overall employee satisfaction, making them feel more empowered and reducing staff turnover rates.

Alignment of Interests

Because they are shareholders, the employees’ financial interests are more directly aligned with the company’s success. While their contracted salary won’t take a hit for a bad quarter, a good quarter can see their share prices pushing upwards – providing greater security as part of their later retirement income.

Aligning employee and company goals is also a part of effective employee retention strategies, which focus on addressing high employee turnover and enhancing job satisfaction by encouraging a more cooperative and proactive work environment.

Rather than focusing on short-term gains- the work that needs to be done this week – employee shareholders often adopt a longer-term perspective on company goals and outcomes, aligning with the interests of long-term investors.

Recruitment and Employee Retention Strategies

The ability to offer shares to employees can make a company more attractive to potential hires — and help retain employees. The prospect of owning a stake in the company can be a compelling part of the compensation package.

Share ownership can enhance employee loyalty once they’re on board. As an effective employee retention strategy, the prospect of long-term financial gain (e.g., through share value appreciation) can encourage employees to stay with the company longer. Companies can improve employee retention by offering shares as part of a holistic approach, using employee listening programs or pulse and engagement surveys to gain insights into employee experience.

Financial Well-being and Work-life Balance

Ownership of company shares can provide employees with a significant opportunity for wealth creation, particularly in rapidly growing companies.

For those earlier in their career, these may be the first shares they own, a milestone in their journey towards financial literacy. Rather than living paycheque-to-paycheque, your ESOP can help them to become more financially savvy as they learn about equity, market factors affecting share prices, and related financial concepts. This financial literacy gained through employee share ownership is a kind of personal and professional development, enhancing job satisfaction and contentment beyond work.

Performance and Increased Productivity

Employee shareholders are likely to become your most productive staff members, driven by the understanding that their efforts can directly impact the company’s performance and, consequently, improve their financial security.

Boosting employee retention can be achieved through improved performance and productivity, as employees feel more valued and motivated to contribute to the company’s success. There is even more incentive to take on professional development opportunities — and bring those learning into the company.

It’s a virtuous cycle: Share ownership can lead to a positive workplace culture, fostering a sense of unity and shared purpose among employees. That leads to an improvement in the quality of work and innovation, which, in turn, encourages employees to invest in the success of their projects and initiatives.

Transparency and Open Communication

Companies with employee shareholders often adopt more transparent communication practices, as employees as shareholders have a vested interest in understanding company performance and strategies. Your ESOP constitution will have guidelines and rules around disclosures to shareholders, and provide clarity about how employee shares are allocated, traded or purchased, so everyone can make informed decisions. Your Succession Plus advisor can also help with education around the ESOP model to make sure everyone understands the employee share scheme.

HR Policy and Administration

Employee retention strategies are often mired in complexity in HR Management. Managing employee share schemes adds complexity to HR responsibilities, including tracking share ownership, dealing with taxation issues, and ensuring regulatory compliance. Effective management of these schemes can play a crucial role in retaining employees by offering them a stake in the company’s success.

Employee Education and Support: HR may need to provide education and support to employees regarding the implications of share ownership, including financial, legal, and tax aspects. Additionally, HR can support employees by providing resources and guidance on how share ownership can benefit them, thereby increasing job satisfaction and retention.

Legal and Ethical Considerations

Creating an ESOP to support a more positive company culture takes some careful planning, and may be rolled out over months, or even years. Being a type of financial instrument, they are usually created under than advice of a CPA, with funds managed by a trustee. Your Succession Plus advisor can help navigate the complexities, which include:

• Compliance: Ensuring compliance with securities and employment laws becomes crucial. Adhering to these laws can help reduce employee turnover by fostering a fair and transparent work environment.
• Ethical Considerations: Issues around equity and fairness can arise, mainly if share ownership is not offered uniformly to all employees. Addressing these ethical considerations can prevent employees from quitting by promoting a sense of inclusivity and fairness.
• Exit Procedures: Employees leave for all types of reasons. The company needs policies on handling shares for a departing employee, such as buyback options or selling restrictions. That said, as an ESOP powers a more healthy work-life balance, reducing burnout and increasing job satisfaction, you should see far fewer employees quit.

In conclusion, the transformation into employee shareholders can bring about profound changes in employee attitudes, behaviours, and the overall HR landscape. While the potential benefits of motivation, retention, and performance are significant, it also requires careful management and support from HR to address the complexities and challenges that come with it. A good work-life balance can prevent the need for exit scenarios by fostering a positive workplace culture and enhancing employee well-being.

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.