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A few years ago at a networking event I ended up sitting next two two CEOs having this same discussion...one converted his company to an ESOP and the other was considering it. After I left them and the dinner, two questions popped into my mind: 1) Do CEOs who convert their companies to an ESOP tend to fall into two groups: A) Those who make the move first and foremost for philosophical reasons or B) those who make the move first and foremost because of benefits like tax benefits? And if #1 is true, is there any correlation between the success of the transition and the original intent of the CEO? Just curious.

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Feb 28, 2021Liked by Loren Feldman

Here are a few questions I have been pondering:

Is there a certain size of company threshold that should be attained?

Did these owners announce ahead of time to employees about the transition to ESOP? If yes, how far in advance?

How have the owners stayed involved? What did/does their transition plan look like?

Are they glad they did it? Wish they had done it sooner?

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founding
Feb 27, 2021Liked by Loren Feldman

Good question Loren. I feel very much like a CEO. I appreciate the wisdom, oversight, and the accountability that this group gives me. This is just one more area to be very intentional about who is doing what and managing expectations. I am in no way hindered in my role but quite the opposite, feel like I can operate with much more confidence knowing I have a solid sounding board who can help me reach the goals of the company. These are accelerators, not hinderances.

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founding
Feb 27, 2021Liked by Loren Feldman

Huge ESOP fan having converted our S Corp to 100% S Corp ESOP in 2011. I had many of your concerns listed Gay. Revenue is not so much the measure but how many people, most say around 25 employees to make it cost effective. Most important advice I would have is be intentional about everything. Have a strong board and trustee who are aligned with your vision. For me this means we are intentional about our ownership model as we work to build a 100 year employee owned company. Also need to be very intentional about repurchase obligation keeping plenty of cash on hand to pay retiring or exiting employees. Happy to heave a side conversation and share my experiences if I can help.

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Thanks for jumping in, Kris! Quick question: With the ESOP board and trustee, do you feel as though you're managing by committee? Or do you still feel like a CEO?

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CORRECTION: When I wrote this, I inadvertently referred initially to an ESOP as an "employee stock option plan." I meant to write, of course, "employee stock ownership plan." My apologies for making an already confusing topic a little more confusing.

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Feb 27, 2021Liked by Loren Feldman

I have lots of questions about ESOPs. Been thinking about them for a while for our company. They sounds great on paper but the execution scares me. Here are a few:

-How much revenue or profit do you need to have for an ESOP to make sense?

-What should the average tenure at the company be for an ESOP to make sense? You don’t want to give away shares of the company and then have the ownership walk out the door.

-If the owner does the right thing and sells to ESOP how do you keep the ESOP from turning around and selling to private equity or something.

-What advantages does an ESOP have over Open Book Management and a good profit sharing program?

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Thanks, Gay. Those are terrific questions. I'm hoping we'll get you some answers either here or at the webinar on Tuesday. One question for you: breweries seem to be especially eager to open their books or go ESOP. Any idea why that is?

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