Unit 7 Employee Ownership and Rapid Improvement Plans

Overview

This week we address Employee Shared Ownership Plans (ESOP) and Rapid Improvement Plans (RIP). The popularity of ESOPs demonstrates that ESOPs are an important element of business ownership strategies that requires a clear understanding of effective measurement of practices within empowered organizational structures. Key points of review involve the improvement principles related to the Service Improvement Flow Chart (TSL pyramid) such as results, resources, measurement, and empowered organizational practice, aligned with stakeholders, accountability / transparency, compatible vision, goals and strategy. There are several resources included in this week’s material outlining the pros, cons, practices and perks for engaging ESOP effectively.

ESOPs hit many of the markers used in The Service Improvement Flow Chart to determine its success and forward momentum within organizations. Using resources effectively to maximize returns on investment and ensure profitability for the future through informed progress to stakeholders and shareholders is central to effective strategic planning and implementation of organizational practice. To ensure these practices translate to the principles mentioned above, it is necessary for ESOPs to be transparent and accountable within the employee shared ownership process. In empowered organizations, the commitment to serve people to fulfill organizational vision, goals and strategy is a necessary structural element for effectively introducing and implementing an ESOP.

A video presentation reviewing the processes of both ESOPs and RIPS within an organization practicing ESOP and RIPS in their company’s corporate practice is included for your review. The objective of a Rapid Improvement Plan (RIP) is to improve Key Performance Indicators (KPI) through a highly involved and detailed plan. Every employee can participate in RIPs, although not everyone will participate in every RIP. RIPs can occur companywide or through departmental practice alone (focusing on one department or business unit).

There are several versions of RIPs in the resource section this week (readings and video offerings) to allow you to review differing versions of RIP processes through the lens of other disciplinary approaches (Education and Health Care) and practices. Our industry guest (included in the video) reviews the ESOP practice within their organizational experience to provide insight into the use of ESOP and RIPs in their practice.

Topics

This unit covers the following topics:

  1. Employee Ownership Plans
  2. Rapid Improvement Plan Design

Learning Outcomes

When you have completed this unit, you should be able to:

  • Interact with, investigate and explain the basic structure of Employee Shared Ownership Plans (ESOP).
  • Apply Rapid Improvement Plan Designs from a variety of sector-specific contexts.

Activity Checklist

Here is a checklist of learning activities you will benefit from in completing this unit. You may find it useful for planning your work.

Learning Activity

  • Learning Lab Preparation: The Learning Lab for this unit will consist of a group discussion. Each student will be required to prepare for the discussion prior to arriving to class. Guiding questions, and an overview of the discussion topics, can be found by selecting the “Learning Lab” tab.

Assessment

  • Unit 7 Assessment: Discussion Question/Reflection Post: The first assessment for Unit 7 will be a post on the discussion forum. Be sure to carefully read through the instructions as you are responsible for completing three separate posts (and responding to your peers). Click on the “Assessment” tab for additional information.

Resources

Important: You need familiarity with core course texts. The course texts listed below are for your daily preparation. Pre-reading course texts, prior to the course start, then re-reading content for each day of assigned reading will deepen understanding of content and allow you to engage materials more completely.

All other text resources for daily reading are available online where you can retrieve them on the Unit page where the reading is required for completion to fulfill learning outcomes for the unit.

Here are the required resources you will need to complete this unit:

  • Delahaye Paine, K. (2011). Measure What Matters: Online Tools for Understanding Customers, Social Media Engagement, and Key Relationships.
  • Eurich, T. (2013). Bankable leadership: Happy people, bottom- line results, and the power to deliver both.
  • Friedman, Mark (2005). Trying Hard Is Not Good Enough. How to Produce Measurable Improvements for Customers and Communities
  • Ulrich, D., Smallwood, N., (2013). Leadership Sustainability: Seven Disciplines to Achieve the Changes Great Leaders Know They Must Make

Employee Ownership Plans

The number of Employee Stock/Shared Ownership Plans (ESOPs) has expanded greatly since being established in the U.S. in 1974. ESOPs are often found in publicly traded and closely held companies of every size, across every industry. It is no surprise this employer retirement plan gained popularity among business owners, management and employees. For shareholders, ESOPs are a valuable liquidity mechanism for minimizing business disruptions. For employees and management, ESOP participation is a reward for years of dedication and hard work and an incentive for future business growth.

What is an ESOP?

An employee stock/shared ownership plan allows employees to become beneficial owners of the stock/ownership in their company. ESOPs are defined contribution plans with primary investment in employer stock. ESOPs are trusts acquiring/holding/selling company stock for the benefit of participants in the ESOP. Typically, the company borrows money from lenders, investors, and/or shareholders and loans the ESOP trust funds for the purpose of acquiring shares. As the ESOP loan is paid down, shares are allocated to employee accounts annually, generally in proportion to the employee’s annual compensation. Employees then receive cash in exchange for their shares upon retirement, termination, disability or death.

An Exit Strategy

Today, many private business owners use ESOPs as their exit strategy. ESOPs are an excellent tool for succession planning, both for liquidity and transition. ESOPs allow business owners to reward their employees and managers with a stake in the business.

Flexible and Friendly Transaction

The flexibility of ESOP transactions allows owners to withdraw from the company slowly over time or all at once, depending on their personal needs. Owners can sell from one to 100 percent of their stock to the newly created ESOP. This makes it possible for an owner to remain active in the business even after selling all or most of the company.

In addition to flexible timing, the ESOP transaction process offers greater confidentiality relative to third-party sales. The private ESOP transaction does not require confidential information to be shared with prospective buyers (other than the professionals working on behalf of the ESOP), which could have a significant adverse impact on the business. While transaction terms and conditions are negotiated to ensure fairness to the ESOP and its participants, it is widely recognized that ESOP transactions have a greater certainty of closing than a third-party sale.

Continuity of Governance

Members of management retain their positions, allowing for a smooth transition when forming an ESOP. Shareholder confidence in management’s ability to grow the business is critical to create the cash flow to pay off acquisition debt. Another advantage of a smooth transition is that long-term relationships with suppliers, distributors and customers remain uninterrupted.

While other exit strategies can have a negative impact on company culture, the transition to employee ownership ensures company culture remains intact or strengthens as the interests of owners, management and employees align.

Employee ownership does not mean employees become more involved in day-to-day operations, governance or strategic direction. There is no requirement to provide employees with financial or strategic information. However, ESOP participants are provided an ESOP summary plan description with annual statements of their ESOP account. In certain situations, employees receive voting rights, specified by the plan document for the particular ESOP.

Employee Ownership – Employee Benefits

Being part of an ESOP can provide unique rewards for employees. Participants in the plan can receive significant retirement benefits at no monetary cost to them. Research shows ESOP companies are more productive, faster growing, more profitable and with lower turnover — benefits accrue to all stakeholders including retirement accounts of employee-owners. In addition, an ESOP is a great way to enhance the company’s ability to recruit and retain top talent. Effective and ongoing employee communications to encourage employees to think and act like owners is necessary to generate the most effective benefits for the plan.

The Disadvantages

While the advantages of ESOPs are numerous, it is important to understand an ESOP is not a good fit for every company or situation. Good ESOP candidates have strong management teams and generally produce consistent and predictable financial results. ESOPs fit best with selling shareholders interested in preserving the legacy of the company and rewarding management and employees with ownership. While ESOPs can pay a competitive price to the selling shareholders, it cannot pay strategic premiums for the shares acquired.

When utilizing ESOP as an exit strategy, an ESOP can offer a per share price limited by the fair market value of those shares. This price may be lower than paid to a strategic buyer.

An effectively established ESOP requires the proper administration of the plan, including third party administration, valuation, trustee and legal costs. Business owners and management need to be aware of ongoing plan costs in the feasibility phase of ESOP planning. If the cash flow limits cash available to reinvest in the business over the long-term, an ESOP is unlikely a good fit.

Long term planning for the sustainability of the ESOP and company are important considerations for implementing ESOP with a company obligation to repurchase vested shares from ESOP participants terminating employment. Therefore, careful cash flow planning should account for the funds necessary to meet ESOP repurchase obligations. Without adequate planning, repurchase obligations compete with other capital needs, limiting the growth and potential viability of the company.

ESOPs only provides benefits to participants if the underlying shares have value. Good management and operation of the business is critical to creating a successful ESOP. The failure of an ESOP can result in employees losing jobs as well as value accrued in their ESOP accounts. For this reason, it is recommended that companies offer retirement benefits in addition to the ESOP. A large percentage of companies with an ESOP also maintain profit sharing plans.

Conclusion

The benefits of ESOP are significant for selling shareholders, the management team, and the employees. It is critical to consult with advisors knowledgeable about the legal, accounting and administrative issues unique to ESOPs to minimize complications related to establishing and administering an ESOP. However, with an ongoing focus on educating participants with guidance from seasoned professionals, the benefits of ESOP practices far outweigh the complexities.

From Weighing the advantages and disadvantages of ESOPs by Chris Staloch (September 16, 2015) (adapted).

7.1 Rapid Improvement Plan Design

We often use the phrase “share the insomnia” in our work at Ownership Thinking because we want every employee in our client organizations to be thinking about, and acting on, the important issues—the issues that may in fact keep the owners awake on occasion. To be 100 percent effective, Ownership Thinking must be drilled all the way through the organization, from both top to bottom and bottom to top. When working with companies, I use the concept and language of “cascading” to drive this point home.

Most people think of a waterfall when they hear the word cascading. I like to use this image when considering the different levels of engagement of Ownership Thinking. The top of a waterfall, higher than the rest of the waterfall and typically narrower, correlates to the long-term, high-level thinking that guides the organization’s decision making. As noted in the figure, this would include your mission, vision, values, and key strategies. The next level of the business waterfall is a bit broader, more involved, and more tactical. This would be the leadership scoreboard, as discussed in the previous chapter. Below that would be departmental, location, or business unit scoreboards. Finally, at the base of the waterfall you have your Rapid Improvement Plans (RIPs), where everyone in the organization becomes engaged.

The objective of a RIP is to attack and improve one Key Performance Indicator (KPI) at a time with a high-involvement, detailed plan. Every employee in your organization can participate in RIPs, although not everyone will necessarily participate in every RIP. In other words, some RIPs might be companywide and others might be departmental in nature (that is, focusing on one department or business unit). The steps to creating RIPs are as follows:

  1. Identify a Key Performance Indicator that needs improvement.
  2. Identify a quantifiable goal and a time frame for the RIP (typically 90 days).
  3. Quantify the financial benefit of reaching the goal.
  4. Determine the actions and people required to achieve the goal.
  5. Name the RIP and create a theme (have some fun).
  6. Identify a celebration for reaching the goal.

From Rapid Improvement Plans (Excerpt from Hams, B. (2012) Ownership thinking: How to end entitlement and create a culture of accountability, purpose and profit. Toronto: McGraw Hill.)

7.2 Learning Lab

The Learning Lab for this Unit will focus on a group discussion. Additionally, it provides an opportunity for you to share your thoughts, or any questions that arose, as part of the notes you kept in your Learning Journal.

Group Discussion

The first part of this unit’s Learning Lab will be a discussion applies our learning of ESOP and RIP. Before arriving to this Learning Lab, read through the following Resources:

  1. Rapid Design Workshop WS8 Example
  2. Rapid Improvement Event
  3. Rapid Improvement Plan Design
  4. A Rubric for Assessing Schools’ Plans for Rapid Improvement

After reviewing the resources above:

Reflect on the principles they cover and how they affect your industry practices for the industry/discipline you represent.

Be sure to document any questions about the practical application of ESOP and RIP materials in your Learning Journal. This will be shared as part of the discussion and documented by the Facilitator or Instructor. All unaddressed inquiries will be forwarded to industry professionals so that practical insights can be learned.

Finally, student’s will be given an opportunity to share their own thoughts, or ask any questions, that arose from their Learning Journals.

Be prepared to participate in the discussion.

Assessment

Assessment for this week will consist of a Discussion Question/Reflection Post. Carefully read through each component outlined below - be sure to follow each step!

Unit 7 - Discussion Question/Reflection Post

Each student is required to submit a Discussion Question/Reflection Post for Unit 7. This post should include your thoughts about how the content for this unit ties into your own practice as a leader. Be sure to follow the structure outlined below:

1. Initial Post

  1. Using Chapter 11 in Delahaye Paine, K. (2011). Measure What Matters: Online Tools for Understanding Customers, Social Media Engagement, and Key Relationships. Hoboken, N.J.: John Wiley & Sons, Inc.
    Review the crisis a chosen organization is known for. You can choose an organization you are aware of or any of the following:
    • Justin Bieber
    • Kinder-Morgan
    • Samsung
    • Saskatoon Health Region
    • Sears Canada
    • Toronto Sick Kids Hospital
    • World Vision
    • or any other organization of your preference
  2. Using pp. 176-182; Review the chosen organization/crisis using the Seven Steps to Measure Crises and Trust. Follow the seven steps outlined to assess and respond to the crises represented above or in an organization you are aware of:
    • What is the desired outcome from the crisis you reviewed?
    • Define the audience(s) affected by the crisis(es) described and what do you see as the desired relationship by the chosen organization.
    • Define the Benchmark the organization should aim for.
    • Determine what you will measure.
    • How will you measure it?
    • What will you do with the information you get from what you measure?
    • How will you track your results to address future challenges?

2. Response Post

Review the initial posts in this unit’s Discussion Question/Reflection Post and post in the forum, what you believe are best responses to the crises or organizations represented. - Suggest any different responses you see as best in addressing the concerns in the crises presented in the initial posts.

3. Concluding Post

Your final post should address the following:

  1. What did you discover about the crises reviewed this week and your organization?
  2. How will that affect/effect the way you address challenges to/in your organization/team?
  3. What will you take back as a preventative idea for your organization?
  4. Any other observations you see as relevant to the discussion for the unit.
  5. Any course questions related to this unit’s post or the material reviewed during the unit.

Refer to the Discussion Question/Reflection Post rubric for more specific information.

For additional information, and to submit your response, please scroll to the bottom of the screen and click on the Unit 7 - Discussion Question/Reflection Post link.

Checking for Learning

Before moving on to the next unit, be sure you are able to:

  • Interact with, investigate and explain the basic structure of Employee Shared Ownership Plans (ESOP).
  • Apply Rapid Improvement Plan Designs from a variety of sector-specific contexts.

Resources

On this page, you will find resources that help further your understanding of the content explored in this unit. This resources have been provided to support, and enrich, your learning. While they are not all “required” reading/viewing, it is strongly recommended that you take some time look over them - if there is a topic that you are struggling to understand, consider spending more time looking through the resources on this page.

Video Resources

  • Rapid Improvement Events: This video provides an overview/blueprint on how to introduce Rapid Improvement process in a health care organization.
  • Leveling Clinic Flow: This video provides an overview for understanding the practical application of Collective Impact principle and practice in a webinar format.
  • Leveling Flow (Part 1): This video provides an overview/blueprint on how to adjust workflow practices in a Rapid Improvement process in a health care organization.
  • Leveling Flow (Part 2): This video provides a Part 2 overview/blueprint on how to adjust workflow practices in a Rapid Improvement process in a health care organization.
  • Process Mapping: This video provides an overview on how to map processes in value stream practice and discussed the steps recommended in the process mapping.
  • Value Streams (Part 1): This video provides an overview of value streams in process mapping.
  • Value Streams (Part 2): This video provides Part 2 of an overview of value streams in process mapping.