Employee share scheme

How to use ESOPs to increase employee engagement

Luke Smith
Luke Smith

5m read time

Employee engagement has become increasingly important as organisations have realised the benefits from having motivated and engaged staff.

But what is employee engagement, and how can Employee Share Ownerships Plans (ESOPs) be used by a company to support and increase engagement?

What is employee engagement?

Employee engagement has been defined as the involvement and enthusiasm of employees in their work and workplace. An engaged employee has a positive attitude towards the organisation and its values, as opposed to disengaged employees who may be unattached to their work and to the business. These employees could range from those doing the bare minimum, through to an employee who is resentful that their needs aren’t being met and are potentially undermining what their engaged colleagues are achieving.

Many companies undertake regular engagement surveys to measure the levels of staff engagement using questions about different influencing factors to see which ones are hurting and helping the most in the organisation.

The benefits of increasing employee engagement

Staff who are highly engaged at work not only provide greater value to the organisation but also experience a better quality of life at work, and are more likely to report a healthier lifestyle including eating healthier and exercising more.

Employee engagement & staff retention:

When employees are engaged, they stick around. Companies with high staff engagement have measured lower staff turnover compared to organisations with lower engagement. If employees care about the success of the organisation, then they are less likely to leave as they don't have a reason to look elsewhere for work. Highly engaged workplaces, where staff are motivated to attend work and perform well, have measured 41% lower absenteeism compared to businesses with lower engagement.

Employee engagement & company performance:

Research over many years has shown that engaged employees produce better outcomes for businesses across industry, company size and nationality, and in good economic times and bad. When compared to organisations with less employee engagement, these benefits include increases in customer engagement (+10%), productivity and sales (+18%) and in profitability (+23%).

This path to improving business performance, and even to a better share price, is often known as the Engagement-Profit Chain. This suggests that having engaged employees leads to higher service, higher customer satisfaction, and higher sales which leads to higher levels of profit and higher share price and shareholder returns.

In a study conducted by Kenexa, the most engaged companies had five times higher shareholder returns over five years than the least engaged companies. A famous example from Campbell’s Soup, attributed the focus on improving employee engagement to increasing performance and share value by 30% during tough conditions, when other companies lost an average of 10% in share value.

Staff sharing

What are ESOPs and how can they help to increase employee engagement?

Employee Share Ownership Plans (ESOPs) are commonly called employee share schemes (ESS) and allow staff to receive shares in their company. There are a number of different types of ESOPs, but common ones offer to give or sell options or shares to their employees. ESOPs aren’t just for start-up businesses- many well established companies including publicly listed companies and multinationals have long-standing ESOPs, and use these as one way to attract and retain key talent for their business. They are commonly included as part of employee benefits, incentives and remuneration packages, and can help offset some salary costs, while attracting the right sort of employee with an ownership mindset.

ESOPS and staff engagement:

There are many factors influencing employee engagement including work purpose, development opportunities, and a caring manager. One key factor is having organisation goals aligned with employee goals, so ESOPs can be a particularly effective way to achieve this.

If staff have a share in the ownership of the organisation and are aligned with its goals, they tend to ask themselves ‘what's best for the company’ and take proper care with decisions they make. They focus on not just the day-to-day work, but on the longer term, and are motivated to understand what the long term goals of the company are, what role they will play in those plans, and what opportunities are ahead. They are also keen to receive regular updates on company performance and are excited by periods of growth and success while more understanding of any decision that needs to be made during tougher times.

Companies with ESOPs have reported seeing increased staff motivation and engagement across their workforce, and participating employees feel an improved sense of engagement and loyalty to their employer. They reported feeling like more than just an employee, along with an increased sense of job security because of their involvement in the scheme. Having an ESOP can create a domino effect on business performance, as employees seek to understand more about business performance, share prices and the impact they can have as individuals on the success of an organisation.

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How to engage employees with their ESOP

The key to effective staff engagement with ESOPs is good communication, visibility and understanding.

How ESOPs are communicated to staff, along with a regular frequency of communications is an essential part. A mix of channels and materials is useful, as a key influence on an employees’ decision to join a plan or not is their family, so communications that the employee can easily share will help with the decision process. ESOPs can be full of jargon, so simple and clear language and processes can help to avoid disengagement from staff. The ESOP process needs to be outlined clearly to educate staff, and the plans delivered as part of an overall programme for employees so that they see a connection with organisational goals and perceive value from participating.

Often employees don’t have easy access to key documents pertaining to the structure and rules of an ESOP, and may not have full understanding of their role in it. Once an ESOP plan has been implemented, it's important to provide visibility for employees. The company must ensure that staff have access to their individual ESOP status, including upcoming vesting events, key records, and grant history. Without regular viewing and updates of their ESOP, employees let it go to the back of their mind, impacting staff motivation and engagement.

By using a cloud-based platform like Orchestra, employees can login and access their information, receive automatic email updates when their options vest, and companies can use the platform to send out regular business and ESOP updates to staff, keeping them engaged.

Get a free guided demo on how to manage your company ESOP in Orchestra.

Related articles:

ESOPs: a comprehensive guide to Employee Share Ownership Plans

ESOP assessment- which ESOP is right for your company?

Using call options in your ESOP

5 reasons to move ESOP management from a spreadsheet to online now

DISCLAIMER: This article is for informational purposes only, and contains general information only. Orchestra is not, by means of this information, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services nor should it be used as a basis for any decision or action that may affect your business or interests. Before making any decision or taking any action that may affect your business or interests, you should consult a qualified professional advisor. This information is not intended as a recommendation, offer or solicitation for the purchase or sale of any options or shares.

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