I had an interesting discussion this morning about using an ESOP as the exit vehicle for owners of architectural and engineering firms.
One of the keys to ESOPs is having developing employees to a high level of understanding about their ESOP account values. With more educated, brighter, professional level employees this is generally easier.
Each employee’s ESOP account is worth some fraction of the value of the entire company. You should understand how shares are allocated to employee accounts, and the total number of shares held by the ESOP.
The value of the entire company is based on performance – historical and expected – and the story of performance is told through the financial statements. You should understand how the figures on the balance sheet and income statement affect the valuation, and how changing the performance is likely to change the valuation, for better or worse.
Performance is based on the aggregation of individual behaviors and interactions with co-workers, customers and suppliers, every day. You should understand how YOUR behavior affects the figures on the balance sheet and income statement, and the impact of other employees’ behavior.
Now you can simply act out of enlightened self-interest. Act in such as way that improves business performance, results in better financial results, increases the company valuation, and fattens your own ESOP account balance. And encourage your colleages to do the same.
It should not be so hard to get there when you start with professional caliber employees.
— David Bass
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