Employees see things differently when they understand the line of sight between job level actions and company results. In an ESOP-owned company, this matters even more because company performance, to a major extent, determines ESOP share value. Below are steps you can take during ESOP month (October) to strengthen these connections.
1) Teach basics of ownership
To build a line of sight, people first need to understand the ESOP’s benefits. The ongoing economic turbulence provides you with a good opportunity to return to the basics and answer questions like:
- Why do we have an ESOP?
- How does it work?
- Who participates?
- What grows my account?
- When do “I” get my money?
Communicating your ESOP’s fundamentals builds the foundation for creating a line of sight to performance. As you communicate, remember to tune into participants’ favorite radio station WII-FM (what’s in it for me?). Focus on your plan’s specifics: people want to know why they should care.
2) Seize the statement opportunity
At least once a year, every participant receives an ESOP statement. This presents you with an excellent opportunity to communicate. Employees’ understanding of the ESOP’s benefits starts with being able to make sense out of the annual statement. Many companies hold annual meetings to walk through the statement and illustrate what happened to employees’ ESOP accounts last year. New employees who also attend, can receive a “dummy” statement to see what they can receive if they stay with the business.
If your company operates across multiple locations, consider holding sessions via the web presentation, producing a customized talking statement DVD, or written materials that demystify the statement.
3) Build a bridge to stock value
Value can be a tricky concept to understand. Most people didn’t learn about it in school, so once again, start with fundamentals like:
- How often is the value set?
- Who does it (and why)?
- Key factors the appraiser examines
- ESOP valuations compared to the public company market place
- How does your company compare to others?
In most situations, you’ll want to avoid delving into complex valuation techniques like discounted cash flow analysis, pro-forma financial projections and discount formulas. After all, you are telling the story about value for the purpose of making a connection to daily work – not explaining the professional appraisal methods.
4) Make the connection: the power of a dollar
Once people understand ownership and value, the challenge becomes showing how job level actions can really add up. The best way to do it: customize examples from employees’ daily work that affect the profitability of the company. In a production environment, that can mean looking at scrap, rework or efficiency. In a distribution business, it might be successful ship rate, number of calls received, average hold time or average order. In a professional service business, it could mean billable hours or revenue growth. In retail, it might be margin or comparative same store sales information.
Pick a measure or activities that are critical to your business’s success. If it’s critical to business success, it will have a major impact on the valuation. Then break it down into dollars and cents and have group discussions (facilitated to cover essential concepts). When you discover value in your job actions, you experience the connection to shared rewards of an ESOP every day.
To learn how Workplace Development can help your firm build a line of sight from employees’ daily performance to ESOP stock value, contact Jim Bado at 419-427-2435 or email him at email@example.com.
Our Power of a Dollar presentation is featured in this article Cost Effective ESOP Communication.