Why Employees Now Expect Equity — Not Just Pay

A new trend is emerging — and it’s not limited to one region.

In this episode of ESOP Radio, Trevor Gilmore and Ben Spade discuss the growing demand for employee ownership, highlighted by recent activity in California’s Central Valley.

Employees are no longer satisfied with traditional compensation. Increasingly, they expect “skin in the game” — and companies are responding by implementing ESOPs as both a growth and retention strategy.

In this episode:

• Why employees are prioritizing equity over traditional benefits
• How ESOPs are being used to attract and retain talent
• The rise of Gen X owners proactively planning succession
• Partial vs. full ESOP structures (flexibility matters)
• The financial impact of employee ownership, including tax advantages
• Why ESOP companies often outperform over the long term

The takeaway: employee ownership is shifting from optional to expected.

Considering an ESOP? Request a confidential preliminary feasibility review at Menke.com.

Learn more:

• ESOP Radio: https://www.menke.com/esop-radio/
• ESOP Boot Camp: https://www.menke.com/esop-boot-camp/
• Confidential feasibility review: https://www.menke.com

Transcript

0:04

Hi everyone. Welcome to the official ESOP Radio. I'm Trevor Gilmore, CEO of Menke, and I'm Ben Spadt. Investment banking with Menke. There is a new trend emerging in California's Central Valley Valley. That is, the large valley that starts around Sacramento and goes all the way down to Bakersfield and a little bit further south. It's often called the breadbasket of the United States. A lot of agriculture happens there. Employees are now demanding skin in the game. As a result, a lot of Central Valley companies are using Esops as a growth and incentive strategy. Hat tip to the Business Journal for reporting on this new trend. Ben, what can we make of this? Yeah, I think, you know, you alluded to it a little bit, but employees don't. Standard benefits aren't enough anymore. Employees what skin in the game. And they want to realize some upside towards the future. So if I'm an employee in the Central Valley taking a look at prospective jobs out there. In the past, you were looking at normal benefits, paid time off, health insurance, and so on. Esops or any sort of equity included in that compensation package is often not part of it. So you're saying, hey, employees are now armed with this knowledge that there are Esop owned companies out there in the Central Valley, and I want to seek those out. You're absolutely right. And even, you know, perhaps you're employed currently at a company that doesn't have any Isa, but you'll see some in your community that are and that's a oftentimes an attractive, you know, option for those employees to move. The second piece here is kind of, you know, that mentality shift. We're seeing not only boomer, boomers that are selling businesses, but gen X businesses owners are planning now for the long term, you know, whether it be the future of the company, of the long terms of their lives. And many of them are using these Esop structures as a conduit for their own liquidity, but also for succession. And I think even, you know, if I wanted to put it in a real close neighborhood type setting, you know, you want to go into the grocery store and be able to look your, your employees in the eye. Absolutely. And let's talk about this trend we're seeing with Gen X's daughters. And we're seeing this here at many across our client base. There's been a change in the past couple of years with our new clients come in and the door staying here men key design and ease of structure. For me that's going to provide a long term ownership, succession, liquidity for me. And on top of that, business continuity and it's often a Gen-X business owner who is thinking that long term as you're like, hey, in the next five, ten years, I want to have an orderly transition. I want to plan this out. I don't want to wait for fate to decide for me. And that's been a huge shift compared to what we saw in the past with different generations and in terms of long term thinking. And it's cool that we're seeing this trend in the Central Valley. Absolutely. And you're right, we do see it across the board. And like I said, it's no longer just the silver tsunami. But we have these Gen Xers that want to take some chips off the table and, and sort of add to that company culture. And furthermore, data proves out that a good equity share program like an Esop can help lift business revenue and profitability in the long term. You know, some of it be a tax savings, some of it because these employees now have skin in the game. I mean, we talked with, one of our interviews in the past about how they have their staff now looking towards fuel costs and how do I save money there so my account can grow in the future? Absolutely. And Esops are very flexible, as we highlighted in our Esop bootcamp and different Esop radio episodes and Esop can come in. I'm own, 1% of the company can own 100%. So just like you think tech companies out there that have employee incentive stock and that just is maybe 2 to 5% of the capital structure. Same thing with the Esops. It does not need to own all the company. It can earn a small chunk. You know, there's no right or wrong answer. You can always increase the Esop ownership over time. So we're seeing that fit in into these models out there in the Central Valley. So data proves that good equity share programs such as Esops lift the business revenue and profit for the long term. Ben, I know you did some research here. Provide some insight there on how a good equity share program like an Esop can enhance the company's long term cash flows and long term strategy and long term survival. Absolutely. So, you know, let's think of it in terms of 100% Esop to begin with. A lot of times we have these, you know, you sell the entire company to the Esop. And so if it's an S Corp, all those profits flow through to the owners. And the owner in this case is an Esop trust and Restore Trust does not pay tax. So we're getting a huge tax savings on the corporate level from that with which can increase profitability there alone. And then additionally, you know, if we think more from a qualitative aspect, less quantitative, we have everybody rowing in the same direction, so to speak. Everybody's working towards that same shared goal, and everybody is operating a little bit more efficiently. Perhaps everybody understands that, you know, if we take care of things a little bit better, these things that we now own, our profitability will increase and the numbers bear themselves out. The most recent data is from 2023, but it just shows that of the most successful private companies in the United States, a good chunk of them are esops or have some sort of equity component. Absolutely. And, Ben, you have good insights into our sustainability practice here at many companies. Are there long term cash flow planning and Esop buyouts and so on. And you see probably a lot of Esop millionaires in that data. Absolutely. And a lot of times that's the first question we get is when when do I become a millionaire as this Esop employee. And at the end of the day, you know, you just continue to put in that hard work, continue to grow. And there are companies that you would not expect that somebody that started out scooping ice cream or pumping gas has become a millionaire just by showing up to work and doing their job. Yeah, amazing stuff here. So I think the main takeaway here of the trend that we're seeing in the Central Valley, which I think is we're going to see this nationwide as well, you know, is there's a trend with employees wanting to gravitate towards companies that will give them skin in the game so that their hard work translates to future wealth in the long term. So the idea of, hey, I'm just, you know, working for cash and that's it. And I don't care if I have skin in the game. You know, I think that those days might be limited. No, I fully agree. And I think whether the company sells 5% or 100% to the Esop, you know, it solves a lot of a lot of questions that they may be searching for. How do I attract and retain top talent. And this can be a big component to that. You know, part of the total package or total rewards is a lot of the HR speak is. But these problems these issues are not just from the Central Valley. They apply to businesses across the United States. And I think that's where we can fit in to really help out identify these problems, these pain points that these companies face. And we have solutions for them. Absolutely. And and then I'll give you two scenarios. Option one is a job offer for a consulting firm that has a decent base, you know, maybe some incentive pay. You know, bonuses and so on, but no equity. Option two is one that offers long term equity. All things equal. Was wondering in the pic if you take the long term equity, of course. I mean I don't have to think about tomorrow then or I have to think a little less hard. You know, that's already taken care of. Whereas today I just have to worry about showing up, doing my job, getting things done. Exactly. So skin in the game, we always give the analogy no one washes a rental car, and it's really cool to see that this is happening nationwide. And I think a bit of it is always supply demand. Two right. Has talent is out there. And on top of that. So the companies need to be awesome places where employees want to work. And on top of that, you have so many business owners who need to create a strategy for their business, for their long term succession, for their liquidity. Esop and the right fact pattern makes tons of sense. It's not for everyone, as we know, but for the right company. And we always say, hey, if your company is better off independent, Esop could be a viable structure here. I fully agree Trevor. Good point. Yeah. So let's leave here with one question for you listeners. How are you using equity in your growth strategy. Send us a note to chat more. Reach out to us email or follow us on Spotify, Apple, YouTube and also ESOP Radio on LinkedIn. Hope you enjoyed the session! Have an awesome day everyone!