ESOP exploration: Can the ‘new’ ownership model age well?

September 5, 2023

By Bryan Strickland, for the Journal of Accountancy

Most CPA firms are steeped in the partner model of ownership, but one of the country's largest firms recently opted to break with that model by establishing an employee stock ownership plan (ESOP).

No firm the size of BDO USA has previously gone the ESOP route, but it's a road that has long been traveled by a midsize firm in Minnesota that opened the door for more firms to consider the ESOP model.

Redpath and Company, based in St. Paul and employing about 200 people, has been an ESOP for about 20 years. The S corporation began offering an ESOP to all employees in 2003 — a few years after founder Jim Redpath successfully lobbied Congress to allow S corporations to offer ESOPs.

Jim Redpath retired last year, cashing out his share of the ESOP trust just like every other departing employee with at least one year of service has done over the past two decades.

"I would say it's been a success because it allowed us to grow. When we became an ESOP in 2003, I think we were a $5 million firm. We're a $42 million firm now," said Mark Gibbs, CPA, CGMA, managing partner at Redpath.

When Redpath made the transition in 2003 — for the sake of its employees, its commitment to independence, and for the tax benefits — Gibbs was the newest of the company's seven partners. The number of partners has tripled since, but their ownership doesn't work the same way it did before 2003. They have a salary-based stake in a trust comprised of Redpath stock.

But, unlike the traditional model, neither the partners — nor co-workers who are beneficial owners through the trust — have to invest a penny of their own money to be invested in the ESOP.

"It's really like having a second 401(k) plan," Gibbs said.

Redpath's decision to go to an ESOP also paved the way for the firm to help others considering the same strategy. Gibbs said Redpath currently has nearly 20 clients it helps with ESOP considerations.

"I would say it was a little more than a happy coincidence because Jim thought it was really cool for us to become an ESOP after he had been so involved in the legislation passing," Gibbs said. "We began working with a lot of our clients, turning them into ESOPs as we became one because we saw the tax benefit to them."

As with any ownership structure, there are pros and cons to ESOPs. The biggest con, however, is one that is necessarily put to bed before a firm even becomes an ESOP.

"When you think about it, [with an ESOP] you're sharing the value of the company with a bunch of non-partners. That's why most CPA firms wouldn't go for this model," Gibbs said. "It is based on your salary as a percentage of all salaries. And everybody is in it."

The partners at Redpath 20 years ago and the partners at BDO today decided that, looking at the entirety of what an ESOP offers, it was the right path for their firms.

Throughout BDO USA's news release announcing its plans, firm leaders referred to envisioning the ESOP as a major driver for recruiting and retaining talent.

Gibbs is among those wondering how that will play out, and whether the outcome will spur other firms to consider the ESOP route.

"That's part of why we did it, and it has worked for us. But I'd be lying to you if I said every 24-year-old kid comes in here because we're an ESOP," Gibbs said. "But knowing some people at BDO, they didn't get to where they are by not being really smart financially. I'm sure there's a financial angle to it that works for everybody, and it will be really interesting if they start selling it across the country as a way to attract employees, as something that makes them unique.

"It's intriguing to us, for sure. We're definitely going to follow it."

— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at

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