Is an Employee Share Ownership Plan (ESOP) an effective remuneration strategy?

Using an Employee Share Ownership Plan (ESOP) as part of a remuneration or incentive plan for employees is becoming far more popular. Especially in a tight labour market where good employees are hard to find and even harder to keep. Employers are looking for more innovative ways to structure remuneration packages.

Using an equity-based incentive like an ESOP is an ideal way to do this for a number of reasons.

• Firstly, an ESOP should be self-funded (with contributions being made out of the improved performance) – similar to a profit share plan.
• Secondly, and most importantly, an ESOP involves equity (ownership of shares in the company) which for the first time exposes employees to capital gains (increases in the value of the shares over time) which they are normally not able to access. In this way, the remuneration structure is providing far better alignment between the founders/shareholders goals and the employees than is normally the case with traditional wages and bonus systems.

During the design and implementation phase, we always review existing employment and remuneration structures to make sure they are in place and working correctly. Employment agreements with clear role descriptions and KPI’s, performance review and management systems and of course the existing incentive and bonus plans in place, are all reviewed. This means we can custom design the plan to match agreed business outcomes and goals. This should not only be improved profit but other key business targets to ensure the plan is benefiting not only the employees but also the company and the existing shareholders.

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.