The Impact of ESOP Transactions on Corporate Social Responsibility

Among the many benefits of an employee stock ownership plan (ESOP), stands the undeniable fact of better long term employee and community investment, both financially and emotionally. Multiple studies show that ESOP transactions positively impact the corporate social responsibility (CSR) of a company. ESOP companies have shown to outperform non-ESOP companies in CSR.  

How ESOP Transactions impact CSR

The National Center for Employee Ownership (NCEO) conducted a study that examined how ESOP companies fared during the economic crisis accompanying the COVID-19 pandemic. Two key findings highlight the impact of ESOPs on CSR:

1. The NCEO found that even during the COVID-19 pandemic, ESOP companies showed unparalleled resilience in comparison to non-ESOP companies. ESOP companies added or retained 6 employees from 2019 to 2020 compared to non-ESOP companies.
2. The study also makes the point that, in 2019, employees of ESOP companies had a substantially larger cushion in retirement assets compared to non-ESOP companies with 401(k) plans ($132,362 versus $63,925 respectively).

Companies with ESOPs shown to financially cope with the economic crisis during COVID-19 and employees were set with thicker assets.

ESOPs and Responsible Business Practices

Not all ESOPs are equal, nor are they all managed equally.

The significance of how ESOPs are managed has an immense influence on corporate social responsibility. Properly managed, the positive effect of ESOP transactions on corporate social responsibility is irreplaceable. Improperly managed, ESOPs can have an adverse effect upon corporate social responsibility. Not only will CSR suffer but poorly managed ESOPs can put the very ESOP company at risk.

Published in the International Journal of Environmental Research and Public Health, a 2022 study found that “a wedge structure weakens the positive effects of ESOPs on CSR.” Conversely, with a dispersed ownership structure, employees' enthusiasm increases. Enthusiasm for the company propels shareholders to favor and participate in the company’s business decisions. Thus, CSR is strengthened through well ordered ESOPs and properly managed ESOP transactions.

The Role of ESOPs in Employee Engagement and CSR

The numbers speak for themselves. The correlation between ESOP transactions, and positive Employee Engagement and CSR is strong.

‍A survey commissioned by Employee-Owner S Corporations of America, and conducted by John Zogby Strategies across the nation evaluated employee opinions of their employers’ prioritization of CSR. The survey ound that:

• 84% of ESOP employees held their companies' investment in local community to be Very Important. Only 53% of non-ESOP companies held this same conviction.
• Employees of ESOP companies felt more valued by employers than those at non-ESOP companies. 67% reported feeling Highly Valued compared just 46% of non-ESOP company employees reporting the same feeling.
• 60% of ESOP employees say their companies made an effort in providing opportunity in the community. Only 30% of non-ESOP employees could say the same.

An employee stock ownership plan leaves employees feeling the social responsibility of the community and wanting to engage more with the business.

Company and Community: A Win-Win

ESOPs allow a company to make investment into the community, while simultaneously building a resilient business. It’s a win-win. Take responsibility for your community and company.

‍Reach out to Aegis and learn how your company can create or tailor an ESOP that will leave a positive footprint on its CSR.