GONE ARE the days when employees were satisfied with the traditional salaries and perquisites. As the workforce becomes more educated and flexible, they are on the lookout for greater job satisfaction and increased involvement in the decision-making processes. To get a slice of the proverbial cake, they expect partnership in and even ownership of the companies in which they work.
Employee-owned businesses are on the rise as workers are gaining control and ownership through buyouts. In an employee buyout, ownership of an organisation is transferred to its employees, in part or in whole, through a buyout structure. The proprietors may either sell the whole business or divest a portion : like a subsidiary, division or product line in favour of the employees. The ownership transfer may be total or a controlling stake at least.
Handing it on a platter
In a typical employee-buyout, an Employee Stock Ownership Plan (an ESOP is a trust established by a company for the allocation of shares to employees) facilitates the transfer. The trust is financed by employee contributions and/or loans from the company itself or outside. Nowadays, there are various institutions that organise, support and finance buyouts by employees. What is important is that the workforce should be collectively able to afford and willing to fund the purchase over a specific period of time or they will be saddled with debt.
The shareholders sell their shares to the trust, which either retains the shares or distributes them to the employees over time. As such, the employees, management, investors and an ESOP trustee own the majority interest in the organisation.
Casting the dye
Even as employees and managers truly become co-owners, complexities will surface down the road when they try their hand at operating the business. Workforce education and active participation are the pre-requisites for the ongoing performance of successful employee-owned companies. Employees will need training to understand and excel in their new role as owners. The management should provide assistance in developing employee skills for participation in decision-making. They should also promote open communication and sometimes even a change in the corporate culture to get the maximum benefit from employee ownership.
With a little support, non-managerial employees can learn how to comprehend the financial information they receive from the company. They should learn what drives their business - the market, competition, new technology, etc. and develop the skills to use them in the employee participation structures that exist.
Having the cake and eating it too
An employee buyout creates a healthy mix of business needs and employee aspirations. It aligns employer-employee interests and fosters a sense of commitment towards the `owned' organisation. Employees can control their destinies and influence how the company behaves. They own an equitable piece of the action by sharing in information and influence as well as profit and capital ownership, which make them strive for success and growth.
The workforce will strive to improve performance and be willing to go the extra mile for the sake of their company. They are motivated to outperform the competition and do not even hesitate to make sacrifices in salaries, work rules and benefits. This also reduces the need for the costly supervisory and monitoring systems that are mandatory in employer-owned organisations. Greater productivity, retention, continuity of staff and preservation of knowledge follow automatically. What's more, in many countries, employee-owned businesses enjoy tax advantages in purchase price, loan repayment, capital gains tax etc.
Various studies corroborate that firms with employee ownership are significantly more profitable and successful than conventional ones.
The back-door exit
Therefore, whenever a business is changing hands - the owner has the option of closure, sale to competitor or the unconventional way out with employee buyouts. This can be an attractive means of preventing the business from being on the market for a long period of time, which may even cause a decline in the value of the business. Employee buyouts can also turn around failing companies or increase the cash flows of good companies even while preserving employee jobs free of the risky control of a new owner.
When existing employers retire or liquidate, they can continue to maintain local control of closely held companies by selling out to their employees. As consultant and advisor, Robert Smiley points out, `Business owners spend a lifetime building equity in their businesses. When it is time to convert some or all of this equity into cash, the employee/ESOP buyout may be their ultimate exit strategy!'
Employee-owned businesses are on the rise as workers are gaining control and ownership through buyouts. In an employee buyout, ownership of an organisation is transferred to its employees, in part or in whole, through a buyout structure. The proprietors may either sell the whole business or divest a portion : like a subsidiary, division or product line in favour of the employees. The ownership transfer may be total or a controlling stake at least.
Handing it on a platter
In a typical employee-buyout, an Employee Stock Ownership Plan (an ESOP is a trust established by a company for the allocation of shares to employees) facilitates the transfer. The trust is financed by employee contributions and/or loans from the company itself or outside. Nowadays, there are various institutions that organise, support and finance buyouts by employees. What is important is that the workforce should be collectively able to afford and willing to fund the purchase over a specific period of time or they will be saddled with debt.
The shareholders sell their shares to the trust, which either retains the shares or distributes them to the employees over time. As such, the employees, management, investors and an ESOP trustee own the majority interest in the organisation.
Casting the dye
Even as employees and managers truly become co-owners, complexities will surface down the road when they try their hand at operating the business. Workforce education and active participation are the pre-requisites for the ongoing performance of successful employee-owned companies. Employees will need training to understand and excel in their new role as owners. The management should provide assistance in developing employee skills for participation in decision-making. They should also promote open communication and sometimes even a change in the corporate culture to get the maximum benefit from employee ownership.
With a little support, non-managerial employees can learn how to comprehend the financial information they receive from the company. They should learn what drives their business - the market, competition, new technology, etc. and develop the skills to use them in the employee participation structures that exist.
Having the cake and eating it too
An employee buyout creates a healthy mix of business needs and employee aspirations. It aligns employer-employee interests and fosters a sense of commitment towards the `owned' organisation. Employees can control their destinies and influence how the company behaves. They own an equitable piece of the action by sharing in information and influence as well as profit and capital ownership, which make them strive for success and growth.
The workforce will strive to improve performance and be willing to go the extra mile for the sake of their company. They are motivated to outperform the competition and do not even hesitate to make sacrifices in salaries, work rules and benefits. This also reduces the need for the costly supervisory and monitoring systems that are mandatory in employer-owned organisations. Greater productivity, retention, continuity of staff and preservation of knowledge follow automatically. What's more, in many countries, employee-owned businesses enjoy tax advantages in purchase price, loan repayment, capital gains tax etc.
Various studies corroborate that firms with employee ownership are significantly more profitable and successful than conventional ones.
The back-door exit
Therefore, whenever a business is changing hands - the owner has the option of closure, sale to competitor or the unconventional way out with employee buyouts. This can be an attractive means of preventing the business from being on the market for a long period of time, which may even cause a decline in the value of the business. Employee buyouts can also turn around failing companies or increase the cash flows of good companies even while preserving employee jobs free of the risky control of a new owner.
When existing employers retire or liquidate, they can continue to maintain local control of closely held companies by selling out to their employees. As consultant and advisor, Robert Smiley points out, `Business owners spend a lifetime building equity in their businesses. When it is time to convert some or all of this equity into cash, the employee/ESOP buyout may be their ultimate exit strategy!'
PAYAL CHANANIA
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