No Less Than 100 Percent
Astro Machine Works has been a staple in the Lancaster County economy since 1984 and continues to be an industry leader in custom machining and fabrication. Located in Ephrata the company has expanded to over 100 employees during their 34 years in business and almost quadrupled their sales from 2006 to 2017 to just under $26 million.
Their journey from privately held to employee owned company started as President Eric Blow shares with a "2007 move to a completely Open Book Management (OBM) philosophy which provided virtual ownership and transparency with the employees."
Carter Cheskey, financial analyst at Astro Machine Works, provides some definition. "Open Book Management is a system in which the company shares its financial information with every employee. Depending on what the financial measurement is, it could be posted weekly in the lunch room, it could be at a monthly town hall meeting. At this point we share everything with everybody with the exception of salaries. They see the exact same package that the board of directors sees."
The company recently began to consider a succession plan and had a number of options including an outright sale. What became apparent, and was the next logical step given their already open book style, was a move from virtual employee ownership to complete employee ownership.
Part of what went into that decision, according to Brian Hess, Astro Machine Works' director of sales and marketing was that, "they didn't want to see another company buy Astro and piece it out. They wanted to keep everything together."
That sentiment goes a long way to defining Astro's approach toward their employees and how the decision to become an employee owned company was a natural transition.
So what does employee owned mean?
Employee Stock Ownership Plans (ESOP) have existed since 1957 and are qualified retirement plans that hold stock shares on behalf of employees and are governed by much the same rules as a 401K plan. One difference is they are entirely funded by the company. Each employee is allocated shares, calculated by a formula based on their compensation level, with vesting over time and reaching a fully vested status in roughly six years. When an employee leaves the company they receive the cash value providing a significant retirement benefit.
ESOP benefits go beyond delivering retirement income however. Research has shown that employee owned businesses result in stronger companies, more stable jobs, employment retained in the local community, increased productivity and more prosperous employees. Every year companies with ESOPs account for the majority of those recognized in Fortune Magazine's "100 Best Companies to Work for in America".
Astro implemented an ESOP in May 2018 and joined the small community of 7,000 other U.S. companies (312 in PA) employing about nine percent of private sector workers.
But not all ESOPs are created equal. Astro didn't want to give employees just a portion of the company – some ESOPs assign a small percentage as an employee ownership stake for example – they wanted to give them all of the company, 100 percent, and in doing so joined an even smaller subset of only 2,000 U.S. businesses that are wholly owned by the employees.
Blow says, "We learned going through this process that a lot of companies do ESOPs wrong. They want to throw their employees a bone so they'll move ten or 25 percent of the shares into an ESOP and do it more as a token than a lifestyle. What we did was a complete 100 percent ESOP that was truly a succession plan for this company."
There's another way Astro set itself apart with its ESOP, and it's additive, not reductive. The company was already known for above average wages, low single digit turnover, high employee engagement and generous health care, 401K matching and bonus plans. It would have been easy for them to use those employee benefits to fund the plan, but that's not their way.
As Cheskey explains, "Some companies will say, 'Good news guys in ten years you'll have something that's worth something, but in the meantime in order to fund it we're going to suspend your 401K match and your bonus.' So you're taking away today's dollars for maybe future dollars, but workers have bills. We didn't take anything away. There was no benefit reduction or cost to the employee."
On a day to day basis nothing has changed – not an employee's job, reporting structure or how the company is run or managed.
But that's not really true. There is something that has changed.
"The ownership mentality changes companies," says Blow. "It literally reinvigorates and ignites this ownership passion and statistically these companies are more profitable."
At Astro the people-centric culture of teamwork and trust with shared rewards for shared success already existed.
Charissa Gift, human resource manager, expands, "We started about three years ago with a conversation about our values, vision and mission and incorporated those definitions into our practices, our policies and our communications. I think it helps people see that they're a part of something bigger that has a structured value system and that's how we do business."
The definitions to which Gift refers include commitment, compassion, innovation, integrity, quality, respect and collaboration.
Hess agrees, "That came from our employees who all had engagement and involvement. They literally constructed what's important to them."
"From there we got rid of annual evaluations and moved to one-on-one coaching and individual conversations about development and training. That was the start of the engagement. Now the ideas coming from these conversations are really meaningful," says Gift.
One example is the ideas that emanate from the workforce development committee. They've spurred Manufacturing Day onto a new level, involved Astro more in community and community groups, and helped form new partnerships with technical colleges. They've had ideas about how to build growth from within using training.
These were the first steps in positioning Astro to become a successful ESOP company.
As seen in Lancaster OnLine and written by Karen Triano Golin.