In the News: Top Small Workplaces, High Retention Rates, Thinking Entrepreneurially, and Feeling Empowered
ESOP Participants Receive a Much Larger Benefit discussed the most recent NCEO Employee Ownership Update. An additional section to the Update was added (Five of Top Small Workplaces Are Employee Ownership Companies), which discusses The Wall Street Journal's Top Small Workplaces 2007 and the common themes of the 15 winners:
"These small businesses tend to let employees at all levels make key decisions, and they groom their future leaders from within. They offer generous traditional and untraditional benefits (how about a six-week sabbatical?). And they constantly hunt for new ways to improve the employee experience or engage employees.
And many share a sizable slice of their profits with employees, teaching them to read company financial statements so they grasp how their job is connected to the success of the organization.
In all, these are companies that can become role models for both large and small companies struggling to lure the new generations of college graduates, who increasingly care more about their work environment than the size of their first paycheck.
And even though these companies invest more in their people, they see returns well beyond their expense. They spend less time recruiting and training new employees, because employees don't flee to competitors. Their reputations as great employers spill into their communities, which, in turn, rewards them with word-of-mouth advertising and positive public relations."
The Update notes how five of the 15 winners have significant employee ownership, including four with majority employee-ownership. Here are the winners:
"Exactech, a NASDAQ-listed ESOP company in Gainesville, FL, that manufactures orthopedic devices."
"Phelps County Bank, a Rolla, MO, 100% ESOP-owned community bank."
"Restek, a Bellefonte, PA, ESOP-owned chromophotography manufacturer."
"Reflexite, an ESOP and employee-owned manufacturer of retroflective devices in Avon, CT."
"Barclay Water Management, a Watertown, MA, water treatment chemical manufacturer that is 100% owned through direct stock purchases from all of its employees."
The article includes a write-up on each of the winners, and here are some notable comments:
Barclay Water Management (Watertown, MA)
"Employees of Barclay Water Management Inc. own 100% of the company. But they don't own it through an employee stock ownership plan, like many small companies offer. They buy their shares directly.
The company holds a stock offering each year in which only employees can buy shares of Barclay stock. About 80% of employees own shares, says Bill Brett, the company's president and chief executive. The advantage of direct ownership, Mr. Brett says, is that employees get shareholder voting power. People who own stock through ESOPs -- where the company contributes shares of the stock through a qualified retirement plan -- don't get actual voting power with those shares because the ESOP's trustee controls them…. The stock ownership also is one of the reasons employees stay at the company for a long time. As of earlier this year, current employees had an average tenure of about nine years."
For the record, some ESOPs provide their shareholders with full voting power. The difference is that full voting rights are not always required with an ESOP.
Phelps County Bank (Rolla, MO)
"Many business owners dream of hiring employees as passionate about the business as themselves. Phelps County Bank has devised its own way to achieve this: Make employees the owners.
With four branches in central Missouri, Phelps is among just a few U.S. banks that are 100%-owned by employees using an employee stock ownership plan, or ESOP. Congress set up ESOPs in 1974 as a tax-efficient way for owners to give employees stock in a business.
Phelps currently contributes stock equal to 15% of employees' salaries into their ESOP accounts each year. Employees are fully vested in their account after seven years and can diversify their stock holdings starting at age 45, by either rolling a portion of the money into individual retirement accounts or their 401(k)s, or cashing out.
The ESOP has created enviable nest eggs for many Phelps employees. Connie Robison, a 55-year-old mortgage loan officer who earns about $40,000 a year and has worked for Phelps since 1991, has roughly $420,000 in her ESOP account due to the annual stock contributions, annual dividends and the stock's growth. "It's like you'll have to pinch yourself to think you'll have this kind of retirement when you leave here," says Ms. Robison, adding that she and her husband have little retirement savings outside of her ESOP account.
Phelps's average ESOP account balance is $311,000, and about seven current employees have amassed more than $1 million.
But it's not just the retirement savings potential that makes the ESOP a powerful tool, says Chief Executive Bill Marshall. It helps inspire employees to think more entrepreneurially about their careers. "Stock ownership was the vehicle that really made us focus on what it meant to be an owner," he says.
Phelps employees are taught to read company financial statements at meetings throughout the year, and the bank discloses its financial results at least monthly. Employees are encouraged to suggest new products and procedures for the bank to implement, and they can receive bonuses for their ideas. They are also cross-trained in other jobs at the bank, so all employees get a broad understanding of how the bank operates.
In recent years, management has tried to instill more of an ownership mentality by encouraging employees to make decisions without feeling they need a supervisor's approval. Bank tellers, for instance, are generally expected to handle customer inquiries and complaints on their own. "We were standing back saying, 'You don't need to come to us,' " Mr. Marshall says. "This is your job -- not our job."
The ESOP also greatly helps with employee retention: Current employees have worked for Phelps an average of 13½ years, longer than any other Top Small Workplaces finalist."
Restek (Bellefonte, PA)
"Employees receive stock through an employee stock ownership plan and a dollar-for-dollar match to the company's 401(k) plan for as much as 8% of pay."
Reflexite (Avon, CT)
"One dilemma many employee-owned companies grapple with is getting their employees to feel empowered by that ownership.
At Reflexite Corp. -- where employees own about 45% of the company through an employee stock ownership plan -- the company has devised some innovative ways to let employees participate in decision making.
One way is through town meetings -- where senior management gives a presentation on a timely workplace problem, such as high health costs or a financial downturn. Management proposes some ways to address the problem, and employees move to different parts of the room depending on which approach they support. Employees in each of the groups are asked for their reasoning, and sometimes employees switch sides as their viewpoints change.
"Even though it's not majority rule, it's not a vote, everyone feels like they got a chance to speak," says Michael Foley, Reflexite's chief executive. Town meetings are generally held at every manufacturing facility in the U.S. and globally where employees are affected by the question at hand.
Employees' actions and opinions at the meetings are transcribed and presented to the board or management, whichever makes the ultimate decision. But in most cases, the consensus view among employees is adopted. "I think [management] feels compelled, if they decide to go a different route, to provide some answers," says Brook Jerzyk, director of global specification and road building. Often, he adds, employees will devise alternative solutions that management never thought of.
Last February, a town meeting was held to discuss the formula used to disperse Reflexite's stock through the ESOP. For years, the company has given employees a percentage of their pay in stock dependent on their business unit's performance. But in recent years, more employees suggested giving each employee the same percentage.
After management held town meetings at every U.S. manufacturing facility -- and saw that most employees supported giving everyone the same percentage -- the company's board approved the change."
Exactech (Gainesville, FL)
"Every new employee is required to take orientation courses on company culture and reading corporate financial statements."
Finally, an excerpt from the Top Small Workplaces Executive Report summarizes the 401(k)/Profit Sharing/Employee Stock Purchase Programs of the nominated companies:
"These organizations also provide funding for retirement, and there is little difference between the 437 applicants and the 15 winners: 93.6% of applicants offer 401k/profit sharing/employee stock purchase programs; 100% of the winners do so. The design of the programs is far from uniform, however. For some the company contributes a percentage of the employee salary to a profit sharing plan, which rewards company-wide and/or business-unit-wide performance. For others, there is a company contribution to a 401(k) plan, with or without a match to employee contributions. Finally, for some of those organizations that are employee owned, the contribution becomes an investment in the company stock. The patterns follow the broad trend of moving away from defined benefit pension plans to defined contribution plans that encourage, if not require, employee investment and reward organizational performance."