Inside the door at EBO Group Inc., you’ll find what President Keith Nichols calls a Wall of Owners.
And it’s not a row of old oil paintings of the company’s forefathers. It’s a gallery of 60 caricatures representing employees who participate in EBO’s employee stock ownership plan.
The portraits are one way Nichols makes the ownership structure visible at EBO, an umbrella organization over companies that develop everything from vehicle components to medical equipment. He wants the structure to be very clear to everyone, starting with employees.
“The biggest mistake is that you don’t educate your employees,” he says. “You can be [more] successful the better you educate.”
When implementing an ESOP, Nichols says your goal should be to make sure employees know about the plan and how it benefits them. And it benefits you and your company, as well, by helping you attract and retain top talent and getting employee buy-in.
“Yeah, you may give up some ownership, financial benefits,” Nichols says. “But after you’re 100 percent ESOP-owned, that stock value will grow faster.”
Under an ESOP, a company contributes money or stock to a trust, and those are divvied up into accounts for eligible employees. But the details of each plan will differ, so it takes clear communication to get
everyone on the same page. At EBO, for example, eligibility is determined by years of service, and only 60 of the 72 employees have worked at the company long enough to qualify.
“It takes constant effort and endless involvement of the employees in what the business is doing and what it is trying to achieve,” Nichols says.
As a result, the plan can sculpt your company’s culture. With a stake in the outcome, your employees bond together under your company’s goals.
“It becomes not the ESOP itself but the culture that you build around it that makes management a lot simpler because you don’t have to constantly get people to buy in to what the company’s doing,” Nichols says.
Before you set the plan in action, seek advice at ESOP conferences and select a third-party trustee to handle administration. Your ongoing task will be passing the big picture on to employees.
“You have much more invested in building the culture and educating employees than you do in just running the system,” Nichols says.
EBO adopted its plan in 1990 as a way to secure the long-term succession plan of the company, which reported revenue of $22 million for fiscal 2008. But Nichols realized that the culture he could build around the ESOP was the real selling point.
The culture starts when you create an in-house ESOP crew. At EBO — which stands for Excellence by Owners — Nichols formed a committee with one nonmanagerial employee from each department. Every year, one member rotates out and his or her department elects a replacement.
Nichols says you need to equip the committee to clearly communicate with the rest of your staff. To do that, he brought in ESOP administrators to train committee members to translate the plan to other
employees and to provide updates about legislative ESOP changes and explain account statements.
For employees to fully understand their accounts, you also need to communicate to them the company’s goals and performance. For example, providing financial statistics allows employees to see how the company’s growth trickles down to benefit them.
And while employees are reaping the benefits of the plan, remind yourself that you are benefiting, as well.
“It all boils down to what you want the ownership to look like in 10, 15, 20 years. [If] you have that drive to see your business flourish even when you’re gone, then you’ll get a different culture than the person that ... just wants out.”
HOW TO REACH: EBO Group Inc., (330) 590-8105 or www.ebogroupinc.com
The communication link
You didn’t step into your position and immediately understand ownership.
So when you adopt an employee stock ownership plan, you can’t expect your employees to either, says Davin Gustafson, a principal at Apple Growth Partners and a longtime ESOP consultant.
“Ownership is not something that’s trained,” he says. “Plan on spending time and effort educating folks.”
You’re probably not an ESOP pro, so bring in outside advisers to help you. Letting your ESOP accountant, valuator or lawyer talk directly to your employees will put a face on the plan.
You should also create an internal source for ESOP communication — whether it’s you, your chief financial officer or a committee — so employees can get the facts from a familiar source.
“Talk about the company’s cash flow in front of employees, what that means for the value of the company and what they can expect their value to do based on what we do,” Gustafson says.
And don’t leave that communication to newsletters or e-mails. To make it as personal as possible, gather five to 10 employees a week for intimate ESOP lunches, working through everyone in a year. If your company is too large or spread out, create a video to send to all of your locations so the entire staff can see you talk about the ESOP.