Invest in the Future of Your Employees with an ESOP
The team-first mentality at HB Global, LLC, has contributed significantly to the growth of our portfolio of leading HVAC brands. Our company culture has also helped us cultivate a workforce of dedicated and career-focused employees who align with our values and ambitions as an employee-owned company.
Our financial success has been powered by our unique commitment to our employees, who are all part of an Employee Stock Ownership Plan, commonly referred to as an ESOP. Designed with the sole intent of directly benefiting employees, an Employee Stock Ownership Plan provides a company’s workforce with ownership interests that grow with the company’s success.
HB Global’s ESOP journey has led to continuous financial success for the company, driven primarily by 19 acquisitions since 2011. Current projections indicate further growth in the future.
Read on to learn more about the employee benefits of joining an ESOP company.
Structuring an ESOP
An ESOP functions similarly to a retirement plan in that both are legally bound and regulated in the same way as a 401(k). However, ESOPs differ through:
- Legal requirements to invest in shares of ESOP stock of the sponsoring employer
- The tax benefits they provide to the company and the owner(s)
- The total funds that may be borrowed through related parties to finance company projects
ESOPs are also used to motivate and reward employees and serve as a supplemental benefit plan. An ESOP does not function in the same capacity that stock options or other equity compensation plans offered by public firms or private companies do.
ESOP plans are also subject to the regulations of the Employee Retirement and Income Security Act (ERISA), which enforces the legal status of an ESOP and the employee benefit plan requirements of the Department of Labor.
How do Employee Stock Ownership Plans Benefit Employees?
ESOPs give back to the employees who work on a daily basis to support a company. This is achieved in a variety of ways, including deducting ESOP values from taxable income through new or treasury shares, allowing the ESOP stock in an employee’s ESOP benefits account to appreciate until the end of their employment.
In this instance, the employees who stay with a company for a significant amount of time earn considerable retirement benefits.
Having an ESOP plan in place also encourages employees to do their best as this model connects company success to employee success by enabling employees to benefit from company stock values.
When do Employees Become Vested in the ESOP?
Vesting refers to the amount of time an employee must work for a company to secure entitlement to their ESOP benefits. The vesting timeframe varies from company to company, but in most organizations employees who leave the company without becoming fully vested lose access to their benefits.
Any remaining benefits from employees who are not fully vested are distributed among other employees. In some cases, forfeitures may be used for administrative costs, though these situations are rare.
For employees to become vested, they must meet the given vestment timeframe, which falls into these categories:
- Cliff vesting, or no vesting at all within the first three years, then 100% vesting after three years.
- Graded vesting, where 20% vesting begins after the employee’s second year of service with an increase of 20% each year until 100% vesting occurs after the employee’s sixth year of service.
Once an employee meets these qualifications, they become fully vested.
Employee morale is a key component of success in any business, which makes investing in those who invest their time and effort in a company a worthwhile cause. ESOP offerings achieve this and champion an internal culture of employee commitment.
The HB Global Difference
HB Global has developed a leadership team of individuals who strive for operational excellence through our mission of working collaboratively and achieving strategic growth.
This, along with our people-first mentality, has allowed us to expand our brand family and ultimately utilize the ESOP as a way to give back financially to the people who made it happen: the employees.
Are you looking to develop a succession plan for your mechanical services company that can provide greater retirement security for your employees? HB Global can help you meet your retirement goals.
To learn more about HB Global’s ESOP journey, visit our website.