Sue Burnett, founder and president of Burnett Staffing Specialists, had never heard of a staffing firm doing an employee stock ownership plan until a friend told her about a staffing firm in Missouri that decided to do one. Intrigued by the news, Burnett investigated the possibilities for her and her husband, Rusty, who serves as CFO and executive vice president, to do an ESOP in their company.
“We thought that this was something that might be an option for us,” Burnett says. “Rusty and I really have no plans to retire, and we weren’t looking for an exit strategy because we weren’t ready to exit. At the same time, Rusty turns 70 this year and I turn 65, so our staff — particularly our younger staff — were wondering what is the future of the company.”
Burnett thought an ESOP was the perfect situation, because she didn’t have to leave the company or retire. It was a way to give back to the people who helped her build the $64 million company.
Smart Business spoke to Burnett about what went into her ESOP decision.
What are some of the advantages of doing an ESOP?
I think that the advantage of it is that now my staff knows what the future of the company will be. I think there was a feeling of relief that we were not going to sell the company No. 1, and that No. 2, we were going to continue on with the company. It gave my management staff a real vision to be able to see into the future that they will be able to run the company without us. With a management staff that’s young, it made them feel like there was really something to work toward, because they are now owners of the company. It is definitely a long-term way to retain staff and particularly management staff.
For me personally, it was a tremendous feeling of relief from the standpoint that now I know that the company is in good hands. The people that helped build it will be the leaders of the future for it and I can stay for as long as I want. It was a way for me to ensure that the company will continue into the future and my staff won’t be worried about what is going to be happening.
Are there any disadvantages?
From an employee standpoint, there’s nothing but positives. They are being given stock, and it’s free. It’s a retirement situation for them. As the company continues on into the future for all of these people who are fairly young, when they retire, if the company is still in business or if the company is sold, whatever happens, their stock will be worth a lot of money. There is no downside for the employee whatsoever. ESOPs have shown growth faster than normal companies because the employees become very committed and excited that they have ownership in the company.
Why would other CEOs want an ESOP?
I do think that for the owners, it’s a wonderful exit strategy, but they have to look at it as a long-term exit strategy. If you want to just sell the company and leave, then that would not be the best thing to do. In our case, it will take about seven years or so to allocate the stock, and we will certainly be involved during that period of time. There have been some ESOPs that I’ve heard about where the owners basically did the ESOP and then left. That was not as successful, because the management team could not keep the success going and the owners didn’t get paid off.
How can you tell whether an ESOP is right?
It is an expensive thing to do because there is a cost. You need to make sure that you’re willing to take on that cost. There are a lot of attorneys involved and a team of people that work on it. You have to have the financial ability to be able to do the ESOP. Also, you have to recognize that the money of the ESOP really just comes from the profits of the company.
I think that if you’re too young and you want to continue to own the company, you shouldn’t consider it. I see the ESOP as more of an exit strategy for people who want to transfer ownership and perhaps stay involved in the company but maybe not for 20 years. The ESOP decision is an owner’s decision.
HOW TO REACH: Burnett Staffing Specialists, (713) 977-4777 or www.burnettstaffing.com