ESOP communication: key ingredients for successful employee ownership 

Employee Share Ownership Plans (ESOPs) are a powerful way to align the interests of employees with the success of a company. Employee ownership can foster a strong sense of ownership, improve employee engagement, and potentially enhance company performance. An ESOP’s benefits won’t be fully realised, however, unless employees understand how the scheme works and trustees are empowered to do their jobs effectively.  

Managing employee expectations through communication 

Coherent communication helps manage employee expectations, build trust, and promote buy-in, while well-trained trustees are essential to supporting the success of the scheme. 

An ESOP can be exciting, but can also create confusion or misunderstandings if not properly explained. For instance, employees might expect immediate returns, direct control over company decisions, or better returns than what are typically seen.   

 It is therefore critical to ensure employees understand how an ESOP works. Often the first question asked by employees is “how and when will I benefit?” It is important to communicate the nature and timing of expected pay-outs, how they are calculated, and what influences pay-out value to manage these expectations. Linked to this is basic financial literacy training, ongoing communication, and an understanding of what drives business success. 

 Clarifying employees’ roles as owners is also crucial. Although employees have a financial stake in the company, they don’t get involved in day-to-day management. It’s important to clearly explain the company’s decision-making structure, showing how responsibilities are split between shareholders, the board, and management, and how the ESOP trust fits into this setup. 

 Building trust and achieving buy-in 

Trust is an essential ingredient for an ESOP’s success. Employees must believe that the company’s leadership and ESOP trustees are acting in their best interest. Transparency, regular updates and open communication are the building blocks to achieve this buy-in.  

 Regular communication about the company’s financial performance and long-term strategic goals is important. This helps employees feel more invested because they can see the connection between their daily work and the overall success of the business. It also shows how their ESOP benefits are determined, helping them understand how their ownership interest is tied to the company’s success.  

 Communication and training 

ESOP communication and training should also be tailored to employees’ specific needs, so the first step is understanding the current knowledge base of targeted scheme participants.  The next step is to create a structured communication plan, which details the frequency, format, and content of training and communications, and the people responsible for delivering them.  

 While key communication will take place at scheme launch, communication about the ESOP should be ongoing and regular, using multiple channels such as newsletters, email updates, in-person meetings, and digital platforms to make information easily accessible. Content should cover how the ESOP works, what can be expected, who it will be managed by, and any related scheme news or updates. It should also explain the  company’s goals and what makes it successful. Sharing information on key performance indicators, the company’s strengths, and industry trends can also help employees better understand the business and how they contribute to its success.  

 Financial literacy is often  a key component of an effective communication program and should give employees a strong understanding of financial concepts such as shares, profits, and dividends.  

 Empowering ESOP trustees 

While communicating with employees is essential, it’s just as important to provide ESOP trustees with specialised training. They have a fiduciary responsibility, which  includes managing the ESOP’s investments, ensuring compliance with scheme rules, legal and regulatory requirements, and making decisions that directly affect the financial well-being of participants. The trustees  are also  in a unique position to help bridge the gap between management and employees and foster trust in the ESOP.  

 Trustee training should expand on the employee communications content, and  cover trustee roles and responsibilities under the scheme rules, the Trust Property Control Act, and common law. 

 By communicating effectively and providing tailored training for trustees, companies can ensure that their ESOP is not just a B-BBEE initiative but a powerful tool for driving shared success. 

 Shaun Smit CA(SA), MBA – Director at Transcend Capital – With over a decade of experience in providing Employee Share Ownership Plan (ESOP) and B-BBEE transaction advisory to multinationals and South African corporates, Shaun Smit has a proven track record in crafting and executing ownership strategies aimed at fostering growth and sustained business success. 

 About Transcend Capital 

Transcend Capital is a specialist Employee Ownership (ESOP) and B-BBEE Ownership transaction advisor, serving South Africa’s leading listed and multinational companies. Founded in 2005, Transcend Capital has successfully advised on over 200 transactions. The company utilises unparalleled expertise and experience to structure and implement value-adding ESOPs and B-B​​​​BEE transactions.