Employee stock ownership plans (ESOPs) are powerful tools for building long-term enterprise value and creating meaningful wealth for employees. They offer both a voice in operations and a stake in the company’s success. While ESOPs are a compelling option, they are also complex, requiring cultural alignment, disciplined governance, and a long-term mindset. According to ESOP leaders, despite the promise of ESOPs, adoption has remained relatively flat over the past decade—often limited by a combination of regulatory complexity, litigation risk, and inconsistent tax incentives.

To examine the strategic case for ESOP formation, Daniel Massey, Head of Strategy and Communications at Expanding ESOPs, shared key advantages. In addition, Kerry Siggins, CEO of StoneAge Holdings, and Sheila Bangalore, an independent member of StoneAge’s board of directors and Chair of its Governance Committee, shared key insights for boards and executive teams on how to evaluate, implement, and govern ESOPs.

Why ESOPs Matter: A Strategic Advantage

ESOPs offer more than a retirement benefit—they represent a transformative approach to corporate structure that aligns employee and shareholder interests. ESOPs can help cultivate a culture of accountability, innovation, and shared prosperity. Some strategic advantages of ESOPs include:

• Wealth building for employees. The bottom 50% of American households hold just 1% of equities. According to Massey, ESOPs can help reverse this statistic by allowing companies to put appreciating assets directly in the hands of workers. He explained, “Equity returns compound over years to generate meaningful retirement wealth.”
• Higher engagement and retention. When employees have a stake in the company’s success, their long-term commitment grows. Ownership results in greater employee retention rates for companies, explained Massey. Ownership, combined with employee voice initiatives, results in greater levels of engagement.
• A culture of continuous improvement. ESOPs fuel a shared drive for innovation and efficiency. “At StoneAge, I see firsthand how all oars are rowing in the same direction, reflecting the shared sense of accountability that comes from ownership,” Bangalore shared. “Employees are excited to come to work and suggest new ideas for improvement.” This culture of progress not only helps with stakeholder engagement but also contributes to the company’s balance sheet.
• Financial and operational resilience. ESOPs enhance decision-making, fostering forward-looking thinking over quick wins. For example, Siggins shared that during the 2019 pandemic, StoneAge weathered the economic downturn and bounced back strong because employees were committed to the company’s long-term success.

Governance in an Ownership Culture

Effective ESOP governance requires a fundamental shift in mindset. ESOP boards must balance financial performance with cultural stewardship, Employee Retirement Income Security Act (ERISA) compliance, and stakeholder engagement.

Moreover, ESOP boards must hold leadership accountable by asking questions, such as:

• Are we encouraging employees to think and act like owners?
• Are we aligning short-term actions with long-term sustainability?
• Are we ensuring employees feel included in our strategic direction?

Strong ESOP boards also integrate social responsibility into financial planning, maintain active oversight of risk and opportunity, and embrace stakeholder capitalism. This broader mandate demands a board culture that reflects the company’s values—particularly inclusiveness, accountability, and candor. “Values like transparency, trust, and authenticity are no longer ideals. They’re operational necessities,” said Bangalore.

While not every employee needs a seat in the boardroom, they do expect to have a voice in shaping the company’s future. At StoneAge, this includes annual town halls, open-book management, and a culture of accountability. “Employees ask incredibly thoughtful, often challenging questions,” shared Siggins. “They’re not afraid to put the board on the spot—and that’s what ownership looks like in action. It reflects how seriously they take their role as stakeholders.”

Making the Leap: Considerations for ESOP Implementation

While ESOPs offer powerful benefits, implementation requires commitment, expertise, and patience. Regulatory complexity, limited tax incentives for large companies, and long transaction timelines can be deterrents. As Siggins emphasized, companies should approach the transition with both optimism and realism. Practical steps for consideration include:

• Define the vision. ESOPs may not be the right fit for every company. First, understand whether this model aligns with the company’s long-term goals.
• Build the infrastructure. Regulation and compliance can be complex, and missteps can be costly. Engage ESOP experts, legal counsel, and financial advisors early to help establish the infrastructure.
• Develop an ownership mindset. Invest in employee education, financial literacy, and open-book management. Create an ‘own-it’ manifesto that reinforces shared responsibility.
• Rethink governance structures. Evolve leadership and board structures to reflect employee ownership and ensure accountability.
• Sustain the culture. Embed ownership principles into daily operations. Encourage innovation, reward collaboration, and reinforce shared accountability.

Embedding the Ownership Mindset

The real work of an ESOP begins after the transaction closes. Success depends on cultivating an ownership mindset in which accountability is both a benefit and a responsibility.

Bangalore emphasized that education and financial literacy are critical. “Without a clear understanding of how the business operates and how value is created, employees cannot fully engage as owners,” she explained. Employees need visibility into performance metrics, strategic goals, and how their daily decisions influence outcomes. Siggins also cautioned that employees may not see tangible financial returns for 18–24 months, which can lead to disillusionment if expectations aren’t managed carefully.

Boards and executive leadership must also set realistic expectations. Company culture may not turn around right away—and even if it does, constant engagement is necessary to maintain it. A thriving culture of ownership is built on responsibility, continuous improvement, and alignment with the company’s mission. These values must be reinforced through governance structures that reflect and support them—led by a board committed to the long-term success of the ESOP and the employee-owners it serves.

Three Principles for Long-Term ESOP Success

For companies willing to invest in the long game, ESOPs offer a powerful path to shared prosperity, deeper engagement, and enduring enterprise value. To ensure success, boards and executive leadership should keep three principles in focus:

1. Know your ‘why.’ ESOPs are not a one-size-fits-all solution. Carefully and candidly consider whether and how an ESOP aligns with the company’s long-term vision. Consider leveraging the insights of experienced ESOP advisors to guide your decision.
2. Keep your foot on the gas. Building an ownership mindset takes time. Embedding and sustaining an ESOP ethos into your company culture requires consistent effort, engagement, and leadership.
3. Listen to your employees. Frontline workers are often closest to both problems and solutions. A culture of ownership starts when employees know their voices matter. As Siggins noted, when employees have a stake in the company’s success, they don’t just work for a paycheck; they work for a legacy.

When thoughtfully designed and intentionally governed, ESOPs offer a rare strategic advantage: aligning performance with a sense of purpose that is deeply rooted in a company’s unique culture and identity. The ESOP model may not be right for every company—and regulatory complexity, cultural inertia, and hesitation from leadership may be barriers—but for those companies that are willing to embrace the challenge and invest in the transition, the payoff can be transformative.