You're a small business owner with a vision. You have an amazing idea, a bit of seed money, and you're about to start hiring your staff. The people you choose need to share your vision, and they need to be committed to hard work. How can you create an incentive program that rewards them and inspires them at the same time?
An employee stock ownership plan (ESOP) might be the perfect solution.
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Benefits of an ESOP
The hardest part of starting or growing a company isn't coming up with a killer app. It's finding, training, and keeping the right team. To do that, you need a competitive benefits and salary package. If you're light on funds and can't make the salary as competitive as you'd like, you can make up for it in benefits. One such benefit is an employee stock program.
By incentivizing your team to buy stock, you're giving them a very good reason to care about the success of the company. When they own a part of it, their ability to earn hinges on the company's success. Your employees own equity in the company--they're not just cashing a check and walking away each day. It's both a reward and an incentive in one.
In fact, according to a study out of Rutgers University, companies with ESOPs grow 2.3% to 4% faster than they'd be expected to grow without one.
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Life Insurance in an ESOP
So where does life insurance fit into the equation? With any ESOP plan, there needs to be a way to fund the repurchase obligation. If an employee chooses to leave your company, for example, what happens to their stock? Most ESOPs contain an obligation for the company to buy back shares from the departing employee. But what if your company doesn't have the cash to fulfill this obligation?
If your company buys permanent life insurance policies on the employees who exercise stock options, those policies offer the source of cash needed to fulfill the repurchase obligation. The longer the policy is in effect, the more cash value it grows. That cash value can be withdrawn, tax-free, up to the amount of premium payments made. You can use that cash value to buy back the employee's shares.
It's also good business practice to insure your key employees whether or not they participate in an ESOP. Should they pass away, where would that leave your company? With a life insurance death benefit, your company gets an instant infusion of cash to jump-start the search for a replacement, or just to pay operating costs while you figure out your next step.
Small businesses have a lot of hurdles on the path to success. Life insurance is one way I can help you jump a little higher.
➡️ Want to talk to a real person about insuring your business? Call or email me for a personalized consultation!