Employee share owned plans: A business model with a superpower
ESOPs turn employees into owners.
Kerry Siggins and Michael Russell are believers that an employee-owned model for business provides tools to get the most out of workers.
Siggins, CEO of StoneAge Inc., maker of waterblast tools and automated equipment for industrial cleaning applications, cited the company's founders, John Wogamott and Jerry Zink, as the original adopters of an employee share owned plan, or ESOP.
"Employee-ownership models like ESOPs create a unique culture of ownership and accountability that has been the key ingredient for StoneAge's double-digit growth since our ESOP was created. ESOPs are a viable and fruitful model for founders looking to exit their companies," Siggins said.
"As the company grew, it provided engaging and good jobs for employees, and their vision was to create jobs that made living in Durango possible," Siggins said.
Genesis of StoneAge's ESOP
Inspired by other employee share owned plan companies, Wogamott and Zink began offering profit sharing in the early 1990s. They set aside 10% of profits to provide as cash bonuses to employees, Siggins said.
"They discovered it was motivating and created more of an ownership mindset among employees," she said. "Employees began to more frequently think critically about the company and ask: 'How can we do this better and do things more efficiently? How can we spend our money more wisely.' They began looking to see how daily actions impacted the bottom line, the profit of the company."
Creation of StoneAge's ESOP began in 1998 when Wogamott and Zink decide to sell stock to the management team.
"It became so popular with management, it was opened to everyone," Siggins said. "They didn't really exactly know how it would all turn out. It started in small amounts, but it turned into an ownership transfer over three decades."
StoneAge's ESOP matures
Siggins said the co-founders kept their shares, and by 2014, ownership had been diluted by the new shares created for employees. As of 2014, employees owned 40% of the company and the co-founders owned 60%.
Also by 2014, Wogamott and Zink were less involved in the company, and the ESOP model became a path forward to transfer ownership and keep the company in Durango.
Employees looked at it as a benefit and a way to make a living from a light industrial manufacturing company located not in an urban core but a mountain town – an outdoor hub with ready access to hiking, cycling, skiing and other outdoor pursuits made possible by living at the base of the San Juan Mountains.
"Jerry and John had the foresight to put in place an employee-ownership model. They didn't have family members who wanted to take over the company. They had two daughters, and neither was interested in the business," Siggins said.
ESOP as an exit strategy
Selling to the employees emerged as the only viable option to keep the company in Durango.
"If you would have sold to private equity, eventually someone would ask: 'Why is this company in Durango? It makes more sense for it to be in Houston,'" she said. "When you sell a company to private equity or another company that doesn't have ties to a community, you will see job loss in that community, and that is something the co-founders and StoneAge definitely didn't want."
In January 2015, Wogamott and Zink created an ESOP trust with co-founders' shares that would be sold over time every year to employees.
Siggins said StoneAge will become 100% ESOP-owned in the next 10 to 15 years.
Under the trust arrangement, shares are transfered to employees in retirement accounts, and are treated under rules similar to a 401(k) program and can be rolled over into an IRA when employees leave the company.
Like all stock, the shares of the company increase in value if the company thrives, and that provides another incentive for ESOP employees to go the extra mile, Siggins said.
ESOP at Russell Engineering
Mike Russell – who recently merged Russell Engineering, the engineering firm he built in Durango, with SEH, a larger St. Paul, Minnesota, engineering practice – said the employee share owned plan in place in the Minnesota firm was one of the attributes that attracted him to SEH.
"So, every employee, after their first year, every employee becomes a shareholder in the company. It definitely does a lot to help increase employee retention," he said.
When he talked with SEH employees in St. Paul, Russell said he was struck by their loyalty and longevity.
"Many employees have been there a number of years, and they often cite the ESOP program as something that excites them, motivates them – the fact that their decisions impact the company, and so they're all owners in the company."
Russell, 59, said merging with a larger ESOP firm provided the best model for keeping his 25-employee operation thriving and rooted in Durango after his departure.
Keeping it in Durango
His goal is to retire in six years, and he saw ESOP as a viable strategy to create robust, sustainable jobs at the firm he built after his departure.
"Having this kind of exit strategy to me was important," he said.
With ESOP in place, Russell said, the foundation is laid to keep the firm thriving and in Durango.
In fact, SEH has a three-year strategic plan in place with a goal to increase the number of employees at the firm, located at 934 Main Ave.
For Siggins, ESOP is a tool that leverages the most out of employees.
"It creates an ownership culture. (ESOP) is ingrained into the company. The employees own it. It's a mindset. Employees show up every day like an owner. They have a level of responsibility that leads to more engagement and participation in their jobs. They're more team-oriented, and they know that they all will share in the company's success."
As seen in the Durango Herald and written by Patrick Armijo, parmijo@durangoherald.com.