My company’s journey to becoming a 100% employee-owned company really began around 2008 as we were continuing to grow substantially. I was familiar with the Employee Stock Ownership Plan (ESOP) model because of my experience with supermarkets. That particular industry happens to be a great candidate for an ESOP because of the low profit margins associated with supermarkets. As I continued to research the concept, I was amazed at how other businesses had become successful by creating an ESOP. Outside of grocery stores, there are other hotbed industries that thrive as ESOPS, such as construction, engineering, architects, and manufacturing.
The overall model had always been appealing to me because it gives everybody an opportunity to have some “sweat equity” in the company – providing the ultimate manifestation of ownership thinking. Employee-owners have something bigger to work for because they’re earning shares of stock, and they have the ability to work for a company that can make that share price go up. And from a financial standpoint, I knew there were substantial tax advantages for me as the selling shareholder and also for the new employee-owners.
A 2000 Rutgers study found that ESOP companies grow 2.3% to 2.4% faster after setting up their ESOP than would have been expected without it. And a 1986 NCEO study found that employee-ownership firms that practice participative management grow 8% to 11% per year faster with their ownership plans than they would have without them. [1]
Essentially, it’s the ultimate form of employee engagement. You’re giving real ownership to the people who help to make the company successful. They, too, get to reap the rewards and the results of all that hard work. Not to mention it’s a second retirement plan to build future wealth at PFSbrands, right alongside their 401K. The profitability and cash flow performance of the company and their future wealth is directly impacted by their actions each day.
You can talk all day about thinking like an owner and trying to get people to act like it. When you tie in this reward that is extremely performance-based, then all of a sudden you get that pull towards action and good decision-making for the long term.
The other main benefit of an ESOP is that it can be used to protect the jobs of employees and protect the community you live in. Unfortunately, many companies neglect to do any type of succession planning. Often times, these companies just ‘die’ and don’t exist after the owner retires or passes away. Obviously when this happens, the jobs of any employees simply go away.
There’s not one particular thing that triggers a company to go the ESOP route, but for us we knew it was a win-win-win situation. It’s a win for me as the founder, a win for the employee-owners, and certainly a win for the community. I strongly believe that the ESOP transaction, and the work we did to get there, will impact the lives of our employee-owners and their families for many generations to come.
After all, becoming an employee owner is not the same as becoming an employee. When you become an employee owner you accept a position that can really make a difference – not only for yourself, but also for your peers, for the business, and for the community.
And today, at our PFSbrands headquarters, we fly a flag outside the office, one that we put up during our 20th anniversary celebration, demonstrating that we are extremely proud of being 100% employee owned.
[1] https://www.esop.org/