How Employee Ownership Breeds Success in Military Housing
Insights from Philip Rizzo, CEO of the first company in this sector to adopt the model.
The employee stock ownership plan (ESOP) has been around for nearly 70 years, with Congress enacting the first regulations almost half a century ago. In 2023, the number of employee-owned or partially owned companies has grown to roughly 6,500, and the number of employees to about 14 million, according to the National Center for Employee Ownership.
Liberty Military Housing, formerly known as Lincoln Military Housing, adhered to ESOP in December 2020, becoming the first military housing provider in the country and the largest property management ESOP in the U.S., with more than 36,000 units in its portfolio.
“The decision was driven by the owner’s intent to continue the 20-year legacy of service to military families while facilitating the transfer of ownership,” said CEO Philip Rizzo, who is a former soldier himself and son of a military officer. “Their partnership shares were sold to the employees and are held in a trust by the ESOP and for the benefit of the eligible employees,” he added.
To ensure a smooth transition to the ESOP model, Liberty’s operational leadership team remained unchanged. Multi-Housing News asked Rizzo to share more about how the program works and the benefits it brings to its employee-owners.
How exactly does ESOP work at Liberty?
Rizzo: There are many ways to structure ESOP programs. What works well for one company may not work for another, even within the same industry. To be entered into the plan, Liberty requires employees to have 1,000 hours of service at the company, one year of employment, and be 21 years old. Employee-owners begin earning shares, and vesting starts at 20 percent after their second year of service, a percentage that increases by 20 percent each year until they are fully vested at six years.
What changed since Liberty became ESOP?
Rizzo: Our company culture has gotten stronger since becoming an ESOP. Employee-owners at every level demonstrate an owner’s mindset, allowing them to feel empowered to make choices and offer feedback that can help us evolve and grow.
The creativity and innovation that employee-owners have demonstrated are extremely useful, from better-leveraging technology to operational efficiencies. Through direct feedback from our employee-owners, we have modified our benefit plans and increased the offered insurance plans. More so, we created new positions and adopted technology for our teams to overcome challenges on-site.
We hold a National Day of Support where all leaders across the country work on-site to obtain feedback on where we meet the mark and where we have improvement opportunities. Additionally, there has been increased transparency and communication from the top down and vice versa. We regularly have conversations with our employee-owners about our overall performance and get real-time feedback on what’s working and what needs to be improved. We’ve also found that employee-owners are more open to discussing their challenges and ready to collaborate to solve problems.
Not only has our ESOP model had a noticeable impact on our company culture, but it has also impacted our operational markers for success. Nearly across the board, we’ve seen improvements. We completed more than 180,000 hours of team member development in 2022, reduced our turn times, increased our completion percentages for PMIs, and most importantly, in 2022 we earned an all-time high score in resident satisfaction.
Are there any downsides to ESOP? How do you tackle them?
Rizzo: Because ESOPs are highly regulated, companies that choose to implement this type of program will likely need to work with a specialist who can help them navigate the intricacies. Like 401ks, ESOPs require ongoing maintenance by a third party to manage annual statements, vesting schedules, share repurchases and other day-to-day oversight.
A challenge most ESOPs have, which isn’t necessarily a downside, is explaining the benefits an ESOP can provide to employee-owners. This should be an incredible recruitment and retention tool, as ESOPs can be an excellent wealth-building opportunity for employees. As a young ESOP, we are only seeing the beginning of this benefit. Mature ESOPs have the benefit of telling the story and showing real examples of those who have retired from their plan. An example is Stewart’s Shop, an ESOP that has created 175 millionaires. We are working to leverage their stories to better illustrate the possibilities with Liberty.
Is ESOP fit for any company? Why (not)?
Rizzo: While there are many ways to have an employee-owned company, and ESOPs can be fairly versatile, it is not a fit for every company. A company should have a history of stability and profitability, so it has the capacity to fund the ESOP. These types of plans also tend to be more successful in medium to large organizations. But most importantly, the company and employees should be aligned on the mission and goals. A culture of shared ownership is essential to ensuring great performance and profitability.
How does the current economic landscape impact ESOPs?
Rizzo: The economic impact on ESOPs varies by industry, as well as privately owned versus publicly traded companies. Different businesses will have different challenges. Studies show that employee ownership, particularly the ESOP model, tends to increase both the sponsor company and employment stability.
What’s Liberty’s management strategy to overcome these tumultuous times?
Rizzo: As a real estate company that exclusively serves military families, we deeply understand how tumultuous times can impact individuals. Because of whom we serve, our commitment to our mission is not just about company performance. It’s our public duty. We put our people first—our military families as residents, our employee-owners, and our partners—and we operate with transparency, respect and integrity. Our shared commitment to serving those who serve our country motivates us to overcome challenges and deliver results that make us proud.