Building a Sustainable Ownership Culture with ESOP Corporate Governance — Part 2

Posted by Aaron Juckett, CPA, CPC, QPA, QKA on Tue, Feb 21, 2017
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sustainable-ownership-culture-2.jpgIn part one of this two-part blog series, we dicsussed how shareholders, the Board of Directors, and the ESOP trustee all play a role in developing and maintaining an ownership culture. In this article, we'll take a look at the roles of officers/management, employees, and the Plan Administrator.


The officers and management are appointed by the Board and are responsible for executing the strategic plan of the company.

Ownership Culture Action Items: Management is arguably the most important piece of the ownership culture.  As employees become more engaged and participate in the day-to-day decision-making process, management will either become threatened at the loss of power and pushback or will evolve into the leaders and coaches of the company.  Upper management should ensure that developing the ownership culture and the transition from task managers to leaders is part of management’s job descriptions and performance appraisals.

Management should be focused on developing and supporting an effective ESOP training program that begins during the hiring process and continues throughout employment.  Management needs to effectively communicate the rights and responsibilities of being an employee owner and incorporate them in the company’s mission, vision, and value statements and the employee’s job descriptions and performance appraisals.

Management should include employees in the training process as much as possible.  Not only does this spread out the ESOP training responsibility, but it helps further develop the knowledge of the trainer.  The trainer generally has more credibility with their peers and is more able to explain the ESOP in understandable terms.  This is most effectively done by developing an ESOP communications plan and creating an ESOP advisory committee, consisting of a broad cross-section of employees, to finalize and implement the plan and to reinforce the culture.

Management can further engage employees by identifying each employee’s key economic drivers and directly linking them to their job responsibilities.  Recognizing results will help strengthen the culture and tying the key economic drivers to short-term incentives will create a work environment where employees can make the biggest financial impact.  The key economic drivers should also be linked to the stock price and the long-term incentive plan, the ESOP.

Employees/ESOP Participants

The employees are hired by management to support the operations of the company.  Employees become plan participants upon meeting the eligibility requirements.  Employees may also be other stakeholders of the company and will have to work to manage any conflicts of interest to satisfy all of their responsibilities.

Ownership Culture Action Items: The first step is to master the ESOP basics and the rights and responsibilities of being an employee owner.  This can be accomplished by reading the Summary Plan Description; learning how the ESOP works and understanding the plan provisions; promoting employee ownership month and other related activities; and joining and actively participating in an ESOP committee.  

It is also important to thoroughly understand how the business operates and how to participate, either by sharing input and ideas or by making changes and decisions that improve the day-to-day operations.  This can be accomplished by asking questions to continuously seek a more complete understanding of the business; being aware of their individual goals and key economic drivers; taking advantage of opportunities to provide input and participate in the decision-making process; brainstorming and sharing ideas and best practices with management; and supporting others in their efforts.

Plan Administrator

The Board can act as the Plan Administrator or appoint a separate Administration Committee to serve as Plan Administrator.  The Plan Administrator has authority and discretion over the management of the ESOP and is responsible for plan design and overseeing the day-to-day operations of the plan.  The Board will usually hire a third party administrator (TPA) to assist the Plan Administrator in satisfying their responsibilities.

Ownership Culture Action Items: The Plan Administrator may create an advisory committee to assist them with employee communications.  The Plan Administrator will often provide voting directions to the Trustee.   

Companies with strong ownership cultures will attest that their cultures were not created overnight. A strong ownership culture starts with the leadership team and cascades throughout the organization.  Every person in the corporate governance process has a role to play in building and maintaining an ownership culture.  To get started, identify specific ownership culture action items, implement changes as needed, and celebrate the successes.Blg-FTR-TPA-Self-AssessmentA version of this article was originally written by Aaron Juckett for The ESOP Report.

Topics: ESOP Corporate Governance

Aaron Juckett, CPA, CPC, QPA, QKA
Written by Aaron Juckett, CPA, CPC, QPA, QKA

Aaron is President and Founder of ESOP Partners and provides implementation, administration, and consulting services to hundreds of companies. He is a member of The ESOP Association (TEA) and the National Center for Employee Ownership (NCEO).

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