Northeast Ohio employee-owners take stock of potentially lucrative business model
Helen Thompson, manager of a digital corporate communications platform at Davey Treehas spent her entire career at the Kent-based tree and ground maintenance business.
Thompson, 30, is now taking literal ownership of her work, joining about 6,000 Davey Tree colleagues as an employee-owner of the business. Through a federally regulated employee stock ownership plan, or ESOP, workers like Thompson are given individual ownership interest in the form of stock shares.
Upon gaining eligibility to join the ESOP – Davey Tree workers must be active with the company for 90 days to buy direct shares – Thompson purchased shares which will ideally allow her to enjoy the company’s future success.
“I’ve spent my whole professional career here, and work with people I enjoy,” said Thompson. “When I became eligible to participate in employee ownership, it was about talking to the folks I trust and respect. The overwhelming response was to participate (in the plan).”
ESOP proponents say that the model keeps participants focused on corporate performance while nurturing a culture of openness and transparency across the organization. Hard work translating to financial rewards is not an abstract concept for Thompson and her colleagues, she said.
“We all have a stake in our success – there’s a dedication from employees to the company and to each other,” Thompson said. “I just enjoy my coworkers and the team that I work with.”
Creating generational wealth
In practice, ESOPs act as an employee benefit plan, setting up a trust fund into which a company makes annual contributions of either new shares of its own stock or cash to buy existing shares. Alternatively, the ESOP can borrow money to buy new or existing shares, with the business making cash contributions to help repay the loan.
Regardless of how the ESOP acquires stock, company contributions to the trust are tax deductible within certain limits. Shares are allocated to individual employee accounts, with all full-time workers over age 21 participating in the plan.
Companies typically tie distributions to vesting, or the proportion of shares earned for each year of an employee’s service. Distributions go directly into staff accounts, then upon leaving the company, employees receive their stock, which the company must buy back at reasonable value.
Davey Tree put its program in place in the late 1970s, over the past few years creating videos about the benefits of owning company stock. Questions about the plan are answered by an ambassador group led by team chair Christopher Bast, also the company’s treasurer, senior vice president and operations support manager.
Emphasis on the ESOP includes information about the company’s “KSOP” plan, a qualified retirement program that combines an ESOP with a 401(k) retirement plan. A KSOP also operates like an ESOP, with stock taking the place of financial contributions, said Bast.
Employee ownership is built into a larger strategic plan that encompasses the company’s values and culture, he added.
“The ESOP drives our legacy in giving the next generation of employees what we have,” Bast said. “The return on shares has been terrific – there’s been a compounding growth rate of 14%.The great part about it is that the guy you’re working next to or passing in the hall is also an employee-owner. That’s going to drive behavior, because you want less cost while taking on profitable contracts and clients.”
A matter of trust
“How we do our work is as important as the work that we’re doing” is the motto of
Rust Belt Riders, a Cleveland food waste recycling service and worker cooperative. As opposed to an ESOP, employees in a worker co-op become direct owners of the company via a controlling ownership interest. Additionally, worker-owners automatically have voting rights, compared to an ESOP where a vote may not be written into plan documents.
Co-op eligibility is based on tenure, a buy-in payment and a vote by current members. At Rust Belt Riders, workers with 3,000 hours (or 18 months) on the job are qualified to purchase a single worker-owner share. Dividends go to worker-members based on a proportion of profit, with tenured employees enjoying a higher percentage of payment.
Shared governance and accountability are the day-to-day benefits of the co-op model, noted Rust Belt Riders co-founder Michael Robinson. With the business currently investing in a new truck, for example, employees are encouraged to brainstorm with drivers on vehicle cost and efficiencies. Input comes from all corners before a decision is reached, giving workers a true feeling of ownership.
“You need trust for this to work, and you can’t build that without transparency,” said Robinson. “When you have transparent financials, it helps to demystify that spreadsheet of numbers directly to what’s happening in the world.”