How ESOPs Improve Employee Retention and Engagement in U.S. Workplaces

Employee Stock Ownership Plans (ESOPs) in the U.S. are more than retirement tools—they give employees a stake in their company, aligning personal interests with growth and fostering loyalty and accountability. Established under Section 4975(e)(7) of the Internal Revenue Code in 1974, ESOPs have become a cornerstone of American employee ownership, driving engagement, retention, and cultural transformation.

The Growth and Popularity of ESOPs in the U.S

• ESOPs are widespread in the United States, with about 6,300 companies offering such plans and managing over $1.8 trillion in assets. Between 2016 and 2022, an average of 264 new ESOPs were created each year, with total participants rising from 14.05 million in 2014 to nearly 15 million in 2022.
• Their popularity comes from a mix of flexibility and tax benefits. ESOPs work across industries, from small private firms to large public corporations, helping businesses with succession and employee retention, while giving workers a chance to build long-term wealth. This balance of value for both employers and employees explains their continued growth and relevance in the U.S.

How ESOPs Boost Retention & Engagement

ESOPs not only build financial security but also transform the way employees connect with their workplace—driving loyalty, motivation, and cultural strength. This impact can be seen in three key areas: –

• Ownership Mindset: Giving employees a stake in the Company makes them more engaged in outcomes, strengthening productivity, teamwork, and commitment.
• Wealth with Tenure: ESOPs reward employees over the long term, motivating them to stay, grow, and build lasting careers within the organization.
• Culture of Shared Success: Employee ownership nurtures accountability and collaboration, creating a workplace culture centered on collective achievement.

Types of ESOPs

Employee Stock Ownership Plans (ESOPs) in the U.S. can be categorized into three primary types, each serving distinct purposes and offering unique benefits:

1. Leveraged ESOPs: The company borrows funds to buy shares, repaying over time. This enables ownership transitions and gives employees a stake without full upfront payment.
2. Non-Leveraged ESOPs: Funded directly by the company in cash or stock, these plans provide employee ownership without borrowing.
3. Hybrid Plans: Combine ESOPs with other retirement plans, like 401(k)s, to maximize benefits and offer a flexible, comprehensive retirement strategy.

Top U.S. Companies offering ESOPs

Here are some standout examples of organizations leveraging ESOPs to cultivate ownership-driven cultures:

1. Room & Board (2022): Furniture retail company that transitioned to 100% employee ownership, offering shares annually to employees based on salary and tenure.
2. Top Notch Logworks (2022): Log construction company in Colorado, first in the state to receive the Employee Ownership Tax Credit while transitioning to employee ownership.
3. Beau Jo’s (2023): Colorado-based restaurant that became employee-owned during its 50th anniversary, supported by the Employee Ownership Tax Credit.
4. Itchy-O (2023): Denver music and performance art company transitioned to a Limited Cooperative Association, giving employees an ownership stake.
5. La Casa Del Mitote (2023): Denver cultural center that converted to a Limited Cooperative Association with employee ownership grants.

Why these Companies shine with ESOPs

• Widespread Impact: Companies like Room & Board and Top Notch Logworks show how ESOPs can create meaningful ownership for employees, even in small-to-mid-sized businesses.
• Sector Diversity: ESOPs succeeded across industries—from furniture retail (Room & Board) and log construction (Top Notch Logworks) to restaurants (Beau Jo’s) and performing arts (Itchy-O, La Casa Del Mitote).
• Cultural Influence: ESOPs help implant company values, whether it’s collaboration and inclusiveness at Itchy-O or community focus at La Casa Del Mitote.

Conclusion

The rise of ESOPs in the U.S. demonstrates how employee ownership can reshape business dynamics. Companies that embrace ESOPs—whether in retail, construction, or the arts—benefit from higher engagement, stronger retention, and a culture of shared success. By aligning employees’ interests with the company’s growth, ESOPs create workplaces where people feel valued, invested, and motivated to contribute to long-term success.