Release Date: 
05/25/19

Alloy Engineering, founded in 1943 in a Rocky River home, fabricates alloy parts for high-temperature and corrosive-resistant industrial applications. It also boasts Ohio's first Employee Stock Ownership Plan, or ESOP, established in 1974. The plan is recognized as the first for an Ohio company by the Ohio Employee Ownership Center (OEOC). At 45 years old, it's also the long- est-running ESOP in the state.

"Today, the company is 100% owned by 100% of eligible employees," said Lee Watson, Alloy's president and CEO. "Every employee is eligible to be in the plan after one year of service; they're vested fully after three years of employment."

Rather than resting on its laurels, the 75-year-old company, with annual revenue between $25 million and $30 million, is taking old-school values and an old-school work ethic to new heights by further concentrating on the well-being of its almost 100 employees.

Watson said the company's purpose is to provide exceptional customer service as well as long-term financial security for its employee-owners. "That's a major shift from where the company was," he said. "There's more of a concern today to make sure the ESOP is working. We have competitive wages, job security, a 401(k) giving employees a second retirement plan, excellent health benefits and we share profits monthly, annually and long-term. We have an open-book management style and share financials with the employees.

"We are a company in transition and we value our employees' feedback," added Watson. "Today, we have an EO Council — it used to be called the Culture Committee — and we have quarterly surveys that invite everyone to bring up any concerns. After five quarterly surveys, we've listened and have implemented many changes, including on topics of compensation and scheduling."

He explained that the ESOP works as a retirement or pension plan. "We're governed by ERISA regulations (The Employee Retirement Income Security Act of 1974) just like every other retirement plan," he said. "A percent of payroll goes into the ESOP Trust every year and that's how the benefit accumulates. They invest it in company stock and go through an annual evaluation because we are privately owned. The shares in the trust appreciate."

Watson said the owners are known as beneficial owners, because they don't really own any of the stock as the stocks are held inside of a trust and the trust has a trustee: GreatBanc Trust Co. in Illinois.

Watson, who took over as president and CEO a year ago, has spent 45 years in the business, starting at 16 sweeping floors in a neighbor's shop. He came to Alloy almost four and a half years ago and took over for former CEO Lou Petonovich, who retired last year after 40 years with the company.

Shannon Kobus, Alloy's marketing specialist, has spent the last two years emphasizing the power of the ESOP to the employee-owners.

"There are so many jobs out there that don't offer good benefits like this," she noted. Kobus led them through the certification process with Certified EO.

"They (Certified EO) publish great statistics," said Watson. "For example, employees of employee-owned companies generally make about 35% more on an annualized basis than their counterparts in non-employee-owned companies and, more importantly, they retire with two to three times the net worth as their peers in non-employee-owned companies. They have incentives to stay for a career."
All the marbles

Alloy Engineering was founded by Paul Menough. The company moved to its current location on Thacker Street in Berea in 1957, and today has two satellite locations: a manufacturing facility in Wellington and controlling interest in a machine shop in Carrollton, Ohio. The ESOP was started by Menough's son-in-law, who wanted to leave a legacy to the employees.

"It's also lucrative for the owners, as they can sell the company to the employees for whatever they want," said Watson.

He pointed out that only 0.3% of companies in the U.S. are 100% ESOP companies. "So, it's not all that common. They didn't exist until the '70s. They were a tax incentive for the government to transfer ownership to the employees — we get some favorable tax benefits."

Kobus said she believes other companies may be taking a turn toward ESOPs. "They're gaining popularity as family-owned businesses aim to make sure their employees are set up for success. Companies may be working harder to do better for their employees."

"It's hard to recruit and retain employees," added Watson. "Companies have to do better for them. We are a traditional manufacturing company: We cut, bend and weld metal. But we're putting more emphasis on valuing our employees and promoting employee engagement. The future looks great. We've made some key hires and are focused on being more customer- and employee-centric," he said.

Watson has initiated a little engagement plan of his own using blue, white and green marbles and a glass jar.

"I was reminded many times after I started here that people want to see me out in the shop more often. I love my time in the shop, but my job keeps me on the phone and in meetings. Weeks could go by between visits," he admitted. "So now, every morning, I place a blue marble and a white marble on my desk. At the end of each day, if I have not had a significant conversation with someone in the shop, I put a white marble in the jar. If I have, I put in a blue marble. Green marbles represent visits to either of our two remote locations." The third-full jar represents 2019 and so far things are looking rather blue ... but in the best way.

As seen in Crane's Cleveland and written by Allison Carey.


Allison Carey
clbfreelancer@crain.com