What is an ESOP?
The acronym ESOP is short for “Employee Stock Ownership Plan” or “Employee Stock Ownership Program.” The IRS recognizes an ESOP as a legal “qualified plan”, or, a “defined contribution employee benefit plan”. It is a part of the Newberry total retirement package, in addition to our 401K.
How Does It Work?
In simplest terms, the founders sold the company to the Newberry ESOP Trust. The ESOP Trust took a loan to finance the purchase using the company stock as collateral. The company pays down the loan every month allowing shares to be released from collateral status. Annually, the released shares are deposited into employee accounts based on a prescribed formula applied to all employees equally. Share value is determined by an annual independent valuation. In essence, Newberry is purchasing the company for its employees – all our employees are owners.
Why be a Newberry Employee Owner?
Well, how does a 15%-20% annual company match of your salary in your retirement plan sound?
Newberry has contributed 15%-18% of total annual payroll (salaries) to loan payments since the inception of the ESOP. These loan payments allow the shares of company stock to be distributed directly to employee accounts where their value can grow exponentially with the growth of the company. While results can never be guaranteed, as the company grows and its value increases, you benefit directly through the ESOP component of your Newberry retirement plan. This is on top of the Newberry match of 50% of the first 4% of your contribution to your 401K - - and you contribute nothing but your effort, creativity and shared stewardship of our company to participate in the ESOP.
It’s called “Shared Capitalism”… and it’s what being an Employee Owner is all about.
Never heard of Shared Capitalism?
In the new book, Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing, and Broad-Based Stock Options, edited by Douglas L. Kruse, Richard B. Freeman, and Joseph R. Blasi, (May 2010) the editors list some take away findings on shared capitalism which include:
Shared capitalism can increase wealth for workers;
Shared capitalism improves the performance of firms;
Shared capitalism improves the performance of worker well-being. It is associated with greater participation in decision-making; higher pay, benefits, and wealth; greater job security, satisfaction with influence at the workplace, and trust in the firm.