Jerry Ripperger
Stock Plan Services Consulting
Let’s face it, for a lot of companies, 2020 was a year they want to see in the rearview mirror. The number of challenges they faced, and overcame, is way too long to list here. While there is some light at the end of the tunnel as more Americans get vaccinated, there are still issues that companies must address.
One of those issues in employee turnover. This is not surprising given the profound impact COVID-19 had on individuals. Some were forced to exit the workforce as they became caregivers or helped their kids with school as classes went virtual.
A recent survey from Principal® highlights this powerfully. Principal surveyed more than 1,000 small businesses and found turnover increased by 20% over the past twelve months, reaching its highest level in years. And what do business owners believe is the cause? 97% of those surveyed said the pandemic increased turnover.
Fortunately, companies have a lot of options to address turnover. One of the ways involves expanding company ownership to include employees. Three popular approaches to do this are Employee Stock Ownership Plans (ESOPs), Long Term Incentive Plans (LTIPs), and Employee Stock Purchase Plans (ESPPs).
- Employee Stock Ownership Plans: ESOPs are qualified retirement plans that invest in the stock of the company. They are intended to create broad ownership among the employees. Typically there is no cost to the employee to participate in the plan.
- Long Term Incentive Plans: LTIPs are awards generally given to senior executives and key employees. They are designed to recruit and retain these important positions by extending ownership to them. LTIPs are often used as part of a comprehensive compensation program.
- Employee Stock Purchase Plans: ESPPs allow employees to purchase stock on a payroll deduct basis, often times at a discount. They may also be able to get capital gains treatment on stock appreciation.
These approaches are not mutually exclusive. Often times a company will use multiple approaches for different groups of employees. Future blog posts are going to look at each type of plan in more detail and discuss where it might be a good fit for your client.
The survey has a wealth of other insights that you might find interesting. View the 2021 Principal Business Owner Insights results (PDF).
