ESOPs

An employee stock ownership plan (ESOP) is a qualified retirement plan established by a company on behalf of its employees. In an ESOP, the assets of the plan are invested primarily in employer stock rather than in other financial assets like a 401K plan. Proponents of ESOPs suggest that this vehicle leads to enhanced employee morale and increased company performance. While the jury is still out on this claim, there is evidence to suggest that ESOPs can be economically advantageous for companies using them as an ownership transition technique.

There are few companies in this industry that possess the characteristics that make them good candidates for an ESOP. Construction is both a highly competitive and a highly cyclical industry and would not seem to be a safe place to put one’s retirement investment. However, there are a select few firms that are ideal for an ESOP. Companies with the following attributes are potential candidates for an ESOP:

• Companies that have a large non-union workforce
• Companies with a more homogeneous workforce
• Companies that are not dependent on new construction for survival
• Companies that do not perform bonded work
• Companies that have a meaningful service or renovation component of their business
• Companies that have growing but stable earnings

Is an ESOP right for your firm? FMI’s advisors can help you examine the advantages and risks of this type of structure.