S Corporation ESOPs Result in Lower Quit Rates

Plan sponsors providing employees the option to own their companies through employee stock ownership plans have significantly higher retirement security compared to most U.S. workers.

During a period when many businesses are grappling with high turnover rates and staffing shortages, employee-owned S corporations report better employee retention than competitors, according to research from the National Center for Employee Ownership, “Advantages in an Uncertain Economy.”

“At a time when businesses overall saw quit rates at highs possibly not seen since the 1970s, leaders surveyed from S corporation ESOPs report quit rates nearly one third the national average,” the executive summary of the report stated. “Further, a key retention tool is baked into broad-based employee ownership—wealth building.”

Plan sponsors offering ESOPs to workers also reported that nearly 80% of respondents from S corporations felt they had a competitive advantage in retaining and recruiting employees as compared with non-ESOP competitors.

Additional key findings of the report included that 80% of S corporation plan sponsors offering an ESOP have greater confidence in their ability to managed economic disruptions; employee-owners experience layoffs at nearly one-fourth of the national average; and the cohort is staying at employers longer because of the benefits, as respondents offering ESOPs estimated that the median ESOP account balance across their participants is $80,500.

Americans with retirement accounts report a median savings of $30,000, the research stated.

“This data confirms yet again that workers at S corporation ESOPs have significantly more retirement security compared to American workers overall,” said Stephanie Silverman, president and CEO of the Employee-Owned S Corporations of America, in a release. “The evidence continues to show that employee-owned businesses and their employees are faring better than most, positioning them to better withstand the challenges of a volatile economy. As business leaders prepare for possible economic uncertainty ahead, ESOP-owned private firms offer a compelling model for positioning workers and companies alike.”

IRS rules dictate that S corporations are companies “that elect to pass corporate income, losses, deductions and credits though to their shareholders for federal tax purposes.”

The National Center for Employee Ownership surveyed members of Employee-Owned S Corporations of America between October and November 2022, receiving responses from 103 companies.

The National Center for Employee Ownership is a private, nonprofit, membership-based research and information organization based in Oakland, California. The report was partially made possible by funding from Employee-Owned S Corporations of America, a Washington, D.C.-based organization representing employee owners.

As seen in Plan Sponsor and reported by Noah Zuss.