By Andrew Nikolai, Managing Director, CSG Partners
Construction talent is at a premium. The reasons are structural, among them an aging workforce, too few young entrants into the trades, and immigration policies that are tightening the labor supply. According to the Associated Builders and Contractors, the US construction industry will need to hire 349,000 net new workers this year alone and 456,000 in 2027.
Under such conditions, builders have a stronger than usual interest in retaining talent. Higher wages, when feasible, aren’t a guaranteed solution. When similar construction firms fight for portable labor, differentiated benefits often matter more.
No surprise, then, that construction companies have been turning to employee stock ownership plans (ESOPs). There are already over 1,100 employee-owned AEC firms in the US, and that number is steadily growing. Often used as a tax-advantaged growth, succession, and exit-planning tool, an ESOP at its core is a retirement plan.
What makes an ESOP unique is that it offers employees company stock. Typically, business owners will sell some or all of their outstanding equity, at fair market value, to an employee trust. Qualifying employees receive annual allocations of stock proportional to their salaries. Shares are always held in trust and are generally subject to a three-to-six-year vesting period.
An ESOP is meant to function as a long-term benefit program, not provide an upfront windfall. Employees typically realize the value of their equity when they retire or otherwise exit. At that point, the company buys back their vested stock at fair market value.
Plan participants earn slowly but steadily accruing financial stakes in the companies they help build. The value of their shares grows with the value of their employers. National Center for Employee Ownership (NCEO) research pegged the median ESOP account balance for participants at $80,500 as of 2023, giving them more than twice the retirement savings as non-employee owners. That serves as a powerful stimulus to retention and employee engagement.
The numbers tell the story. NCEO data indicates that employees at ESOP-owned S-corps leave their jobs at a third of the national average rate. And close to 80% of decision-makers report better recruitment and retention results than their non-ESOP peers.
The labor crunch facing construction is unlikely to disappear soon. For a growing number of sector firms looking for ways to attract, retain, and motivate talent in a tough market, ESOPs could provide the answer.
Andrew Nikolai is a Managing Director at CSG Partners, the nation’s leading ESOP investment bank. His practice is focused on building succession, exit, and shareholder liquidity strategies for construction industry companies nationwide.