The Construction Industry Embracing Employee Stock Ownership Plans

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While the ongoing COVID-19 pandemic disrupted just about every industry you can think of, not all of these situations were necessarily negative. Not only did the construction industry survive the Coronavirus, but many companies outperformed their original expectations.

Interestingly, one recent study conducted by the National Center for Employee Ownership may have revealed part of why this is true. Their research indicated that organizations with employee stock option plans were only about half as likely as those companies that didn't offer these options to go bankrupt or close their doors entirely. Not only that, but they were also three-fifths less likely to "disappear for any reason."

Why Employee Stock Ownership Plans Matter

Even in "normal" times, employee stock ownership plans bring with them a wide range of different benefits that cannot be ignored. Among all things, these options have to do with how they help maintain the founder's legacy in a way that also defines a business's ethos moving forward.

When a construction company is sold, that buyer will naturally be looking to achieve a certain level of return. Because of that, they'll likely capitalize on opportunities to reduce overhead and to cut certain types of benefits if possible. They may simply have an entirely different culture and outlook on the situation, which isn't necessarily good news for employees. With an employee stock ownership plan, on the other hand, suddenly there is a flexible way for shareholders to transition ownership at a fair market value while maintaining the core business's original legacy and culture as much as possible.

Another major benefit that employee stock ownership plans bring with them is how they dramatically help boost a company's employee retention and recruiting efforts.

It's safe to say that the construction industry in particular has faced significant challenges over the last decade. Not only does it experience notoriously high turnover, but it has also been hit with a talent shortage. Therefore, offering an employee a stock ownership plan can’t just be an effective way to attract top talent - it can help retain them. This is because the value of that stock - in theory - should increase every year, so long as the construction company in question continues to hit certain financial projections. Therefore, any employee would need to think long and hard before moving to another company - especially if it means they might have to give up such an attractive long-term retirement benefit.

Depending on the company’s nature, it's also possible to take these programs one step further. If there is a particularly essential employee that you're worried might leave, you can always add additional rewards on top to incentivize them to stay. One option would be a non-qualified management incentive plan.

Of course, none of this is to say that employee stock ownership plans don't require their fair share of considerations - especially among the requirements that are unique to construction firms in particular. There are certain bonding requirements that companies need to deal with, for example, meaning that these plans need to be set up with the proper structure so as not to negatively impact the company's balance sheet.

Likewise, licensing requirements vary from state to state - proving tricky, particularly for companies that conduct business in more than one area. A significant purchase by the employee stock ownership plan - say, $20 million - will usually be financed with both outside and seller debt. This will create an equal liability, decreasing that company's net worth by the same amount. Depending on the state, that may take you under the minimum amount required to get a license - which is another reason why it's so important to make sure that these programs are set up exactly the right way.