In order for any business to thrive, its entire team must operate like a well-oiled machine. That means from upper management to lower-level employees, everyone should be working together and on the same page. This starts with strong leadership!
Being a strong leader is a crucial part of aligning everyone’s interests and ensuring you’re on track to meeting your long-term goals. After all, an executive’s ability to direct and manage a company not only affects brand authority, but it sets the tone for what is expected of its employees.
But introducing an employee stock ownership plan (ESOP) is another way to bring an entire firm together, and this can either be a decision made by upper management or as a result of feedback or suggestions from employees.
How ESOP Has Become a Leadership Style
ESOPs have gained considerable popularity in recent years for two key reasons. First are the ways in which they can increase a brand’s value, and second are the positive effects they have on a company’s employee culture — specifically in regards to leadership. The values embedded in ESOPs represent much more than their tangible benefits, including transparency, open communication, and others that add up to the idea of team-based leadership. This style of leadership encourages employees to work together towards a collective mission rather than to yield to one executive power.
There are clear advantages to introducing an ESOP in both top-down and bottom-up systems, but there are also drawbacks. Since ESOPs require every person in a company to communicate openly, work together, and set role boundaries, introducing one in a company with any kind of management system can create an atmosphere where the executive is respected by their employees and that respect is mutual.
Let’s take a closer look at the difference between ESOP as the result of top-down leadership versus bottom-up!
Top-Down Leadership
Top-down management is the most common business structure and is organized exactly how it sounds. The top calls the shots, and their orders are carried out down the chain of command. In this system, a CEO would theoretically decide to introduce an ESOP and the upper management would be responsible for exercising its benefits. Meanwhile, the employees beneath them would simply receive information and go with the flow.
If the top dog introduces an ESOP, it’s usually for their advantage. ESOPs give CEOs more flexibility with their retirement plan and allow them to ease away from their role in the company. This can be helpful in terms of productivity and practicality, seeing as there are no disputes or disagreements to be ironed out concerning the plan. It’s a done deal per the CEO’s decision, and that’s that.
This brings me to perhaps the biggest negative of a top-down ESOP scenario, or the fact that lower-level employees have no say in its exercise. There could be lower-level concerns that never make their way up to the top of the totem pole, and if the bottom is the group receiving those benefits, how is that a fair system?
Bottom-Up Leadership
Introducing ESOP under bottom-up management looks totally different from the previous organization landscape. Bottom-up management means the organization as a whole maintains authority over business operations, giving everyone a say in the decision-making process.
The greatest perk of introducing an ESOP from the bottom-up is that it means employees are dedicated enough to want major stakes in their company. Also, ESOPs require active participation and often give employees even more drive, leading to better company performance overall. ESOPs are extremely conducive to the bottom-up system for that reason alone, seeing as an open line of communication ensures the exercise of benefits without much in the way of disputes.
But initiating an ESOP from bottom-up demand isn’t all good. Too many voices can sometimes slow down the decision-making process and interfere with a company’s goals, which, if left unchecked, is detrimental to long-term productivity!
ESOP and Bottom-Up Leadership: The Perfect Match
Making the most of an ESOP requires the support of a driven, passionate team with a strong commitment to their firm’s mission. Plus, the success of its benefits hinges on active communication, collaboration, and cooperation on the part of its recipients. In an environment where one person is responsible for the hard-hitting decisions, none of those things would likely be accomplished. And who’s to say its benefits would be exercised in a way that’s best for everyone?
All things considered, I would stress to any company that introducing an ESOP from the bottom-up is the way to go! Employees who feel passionately enough to go the extra mile and initiate such a policy most likely have a good reason to and will thus understand the ins and outs of their benefits. In addition, this will lead to fair, reasonable negotiations which represent the team as a whole rather than the person at the top.
Final Thoughts
While ESOPs can be introduced by executives and work to an entire firm’s advantage, this outcome is much less prevalent than when an ESOP is introduced as a collective effort from the bottom-up. And as stated before, it is possible — just a lot less likely!
After learning the ins and outs of introducing an ESOP under both leadership styles, what are your thoughts? Do you think it’s more advantageous if spawned from employee interest or from executive authority? Let me know if I’ve won you over for the former!
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