Incentives can boost bottom line, curb turnover
By DIANE STAFFORD
The Kansas City Star
Posted on Wed, Dec. 21, 2011 11:33 PM
At NCM Associates in Overland Park, employees are getting a gift that will keep on giving — an infusion into their nest eggs.
More than half of the professional services company’s 92 employees have been on the job long enough to be fully vested in the company’s employee stock ownership plan, and they’re expecting a contribution worth 10 percent to 13 percent of their total annual compensation.
Their ESOP is “a pretty good incentive to hang around and contribute to the company’s future,” says Nikki Lear, an information technology worker who’s worked there for 33 years.
Sluggish hiring markets always encourage workers to stay put because there aren’t many available options. But surveys show that up to three-fourths of employees are interested in different opportunities and are at least passively looking for new jobs.
But research shows that workers who have financial skin in the game have an extra incentive to stay on the job.
For 13 million employees in 11,300 U.S. companies, that “skin” is company ownership through an ESOP. Stick with the company. Build a nest egg.
Advocates for employee ownership plans say that, assuming the company stays profitable, benefits don’t go solely to the worker.
To Penny Correa, an administrative assistant at NCM, “The ESOP is a great motivator within the company. … You take extra pride in your company as well as work harder.”
In theory and in practice, that generally translates into a better bottom line.
The National Center for Employee Ownership believes about 25 million employees participate in some kind of company ownership plan, including profit-sharing, gain-sharing or 401(k) retirement plans that are heavily invested in their employers’ stock.
It turns out that the Kansas City area is something of a hotbed for ESOPs in particular.
Black & Veatch, Burns & McDonnell, HNTB, Terracon, Ferrellgas, Garney Construction, MMC, and NCM Associates are among the companies based in their area that view employee ownership as a way to attract and keep workers — building motivation and loyalty to boot.
Workplace consultants say employee ownership and profit-sharing are no-brainers for employers who wish their workers “would think like owners.”
“I’m an advocate,” said Thomas Peebles, a Salina attorney who specializes in helping companies follow ESOP regulations. “But you have to make the skin in the game mean something. It takes a cultural change to remind and treat employees as owners.”
When done right, workers may feel like Jeff Lampton, an NCM employee, says he does: “I don’t work for NCM. I work with my associates.”
A Rutgers University study, done in 2000 but still cited in support of ESOPs, found that ESOP companies grew 2.3 percent to 2.4 percent faster after setting up their ESOP than would have been expected without it.
As defined benefit pension plans wane and workers get nervous about the future of Social Security, the lure of building a retirement plan on the job becomes more enticing. And the need to stay long enough to get vested in the plan tends to calm any itch to leave.
At Burns & McDonnell, a Kansas City-based engineering firm that’s been employee-owned for 25 years, staff turnover runs 3 percent to 4 percent a year, or about half the engineering industry’s average.
A BenchmarkPro survey this year of industries across the board found a total turnover rate of 14.4 percent, with voluntary turnover at 9.1 percent.
“It’s definitely a retention tool,” said Burns & McDonnell spokesman Roger Dick. “Every employee is eligible from the get-go at no cost to the employee.”
Each year, the engineering company has channeled 12 percent to 13 percent of total compensation costs into its ESOP, which is touted to employees as a retirement plan in addition to the company’s 401(k) plan.
While 401(k)s require employees to invest some of their own money to get an employer contribution to the retirement fund — generally 50 cents from the company for every $1 saved by the employee, up to 6 percent of the employee’s base pay — ESOP contributions don’t require a buy-in from the worker.
Stay on the job long enough to meet the company’s ESOP vesting requirements (often five or six years, depending on the company plan), and the contributions automatically flow, assuming the company is making money.
“Being part of an ESOP means when times are good, we all enjoy the benefits, and when times aren’t so good, we all make sacrifices to ensure our ESOP survives,” Lear said of the NCM plan.
Still, ESOPs aren’t universally beloved. Some critics point out that ESOPs sometimes have been created by business owners who wanted to exit their businesses with a tax dodge accomplished by creating an ESOP.
Others cite the expense of maintaining the ESOP, which requires annual outside evaluation of the stock’s value — necessary because, in almost all cases, they’re privately held securities that aren’t publicly traded.
Still others note that ESOP investments are betting on the future, and some workers would rather have the cash added to their paychecks now.
And then there was Enron’s collapse, when employees lost their jobs and their retirement funds at the same time. That and other post-Enron lessons have led to rules that allow employees to diversify some of their ESOP shares beyond their own company stock.
Workers have learned that employee loyalty is good, but not at the expense of long-range financial security.