The decision of the Lee family to convert the Eureka Casino to an employee owned company raises several question for both employees and the community. Foremost is the announcement that the property will become an “ESOP” company. So what is an “ESOP” and what does it mean?
While ESOP and the famous Greek storyteller Aesop sound the same, there is a world of difference. ESOPs or Employee Stock Ownership Plans, are very real and nationally cover over 7,000 companies and 13.5 million employees according to the National Center for Employee Ownership (NCEO).
An ESOP is an employee-owner plan that provides a way for workers to have an ownership interest in a company. An ESOP company can provide employees with stock ownership at no up-front cost and are offered as a way to keep employees for the long term and to provide income when an employee retires or leaves a company.
In an ESOP an employee’s shares are held in a trust which will sell the shares upon the employee leaving the company. In the case of the Eureka, employees will be vested after six years of service, including previous years of employment before the creation of the ESOP.
An economist, Louis Kelso, is generally credited with the invention of ESOPs in the 1950s. Early supporters of the idea included a broad cross-section of America’s political leaders from populist Senator Russell Long of Louisiana to Republicans Barry Goldwater, Richard Nixon and Ronald Reagan.
Legislation for ESOPs was approved in 1974 as part of the Employee Retirement Income Security Act, and was amended in 2001 to insure that an established ESOP included everyone in a company from the CEO to the lowest paid worker.
The advantages to the employee include not having to pay taxes on the shares until they receive a distribution upon leaving the company. The funds can then be rolled over into a qualified retirement plan or turned into cash.
Studies have shown that a company benefits by having improved profitability, tax advantages and more dedicated employees who share a feeling of ownership in the company.
On the downside, if a business fails workers can lose the value of the stock. For this reason, most advisors suggest that ESOPs not be the employee’s only source of savings for retirement.
In general, ESOP participants do better than other comparable companies. The NCEO cites a 1997 Washington State study that found ESOP workers made 5 to 12 percent more in wages and had “almost three times the retirement assets as did workers in comparable non-ESOP companies.”
While ESOP’s themselves are not unusual, having a casino become employee owned is very rare. The Eureka, if approved by regulators, will become the first ESOP casino in Nevada, and only the second casino nationally.
In the end, ESOP’s are a way a company can preserve its culture, trained workforce and long-term future in a competitive environment. Those are all values sought by the Lee family and our community.