MASSACHUSETTS - One U.S. state is taking steps to mitigate what some are calling the "silver tsunami" - a wave of thousands of baby boomers selling their businesses as they prepare to retire.
A growing number of baby boomers aren't planning to pass on their businesses to their children, reports Fast Company. Instead, many individuals are choosing to sell to corporations, private equity firms, and large conglomerates to avoid shuttering their life's work. But of course, that often means layoffs and fewer businesses.
Massachusetts is one state that's concerned. It hired two non-profit firms to assist in convincing the owners of the state's 28,000 boomer-run businesses to shift to employee ownership models.
One type of employee-owned model has seen a big rise in popularity as of late, including in the woodworking industry. Companies belonging to an employee stock ownership plan (ESOP) provide their employees with stock ownership, often at upfront cost to the employees. ESOP shares, however, are part of employees' remuneration for work performed. Shares are allocated to employees and may be held in an ESOP trust until the employee retires or leaves the company. The shares are then either bought back by the company for redistribution or voided.
An ESOP grants favorable tax incentives, including paying little corporate income tax, on the sale. The business also gets to remain independent and keep its distinct culture.
More than 7,000 U.S. companies have gone ESOP, says Forbes. In our industry, wood waste processor Bandit; Whitewood Furniture; surface fabricator and tooling firm Pinske Edge; cabinet firm Mid South Building Supply; Kentwood Office Furniture; and Wisconsin's KI furniture - one of the nation's largest employee-owned firms, have transitioned to ESOP.
Giving employees ownership has a few advantages. Many employees will feel that there's more at stake and as result, be more engaged. Companies with high employee engagement saw 37 percent lower absenteeism, according to Gallup. Gallup also found a 43 percent correlation between engagement levels and turnover. When engagement goes down, turnover goes up. If engagement goes up, turnover goes down.
There is some concern about ESOP models though, as they tend to be complex and expensive - especially for a very small business. Some owners are also hesitant to trust employees with that level of responsibility.
Incentivizing employee-owned models could be especially important today, as data suggests Millennials are starting businesses at the lowest rate of any generation.
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