Companies throughout Dakotas, Minnesota handing the keys to the employees
According to the National Center for Employee Ownership, there are 306 ESOPs in Prairie Business’s three-state coverage area – the Dakotas and Minnesota – and 262,798 participants. Minnesota has the largest number with 225 ESOPs, followed by North Dakota with 58 and South Dakota with 23.
Ever since the late Lonnie Laffen co-founded JLG in 1989, the company has prided itself on the people it attracted and the culture it developed.
Thirty-two years later, it has grown into the company it is today because of those people and that culture.
But in some ways it is a better company today than it was just seven years ago. That year, 2014, the Grand Forks-based architect and design firm adopted an Employee Stock Ownership Plan, otherwise known as an ESOP.
“We've always had this really strong culture of ownership in our organization, and so the idea of having broad employee ownership, we felt, really aligned with our culture,” Michelle Allen, JLG's CEO, said in an interview with Prairie Business. “We were already an open-book management company; we already had really transparent communications. We're a highly engaged organization, and it seemed to fit our company well.”
There are several ways employees can become invested in a company. Buying stock directly into a company or obtaining stock through a profit-sharing plan are a couple of examples, but there are others. The most common form of employee ownership is the ESOP, according to the National Center for Employee Ownership .
“ESOPs,” according to NCEO, “are most commonly used to provide a market for the shares of departing owners of successful closely held companies, to motivate and reward employees, or to take advantage of incentives to borrow money for acquiring new assets in pretax dollars. In almost every case, ESOPs are a contribution to the employee, not an employee purchase.”
JLG started considering an ESOP as early as 2007, but began moving closer to that reality in 2012 when it hired eight minority partners.
At the time, its then four partners came together to discuss what kind of company they wanted JLG to become. The consensus was they wanted it to be a legacy company, one that accomplished memorable and impactful projects in the communities in which their team worked.
And, Allen said, they wanted to attract and retain the best talent possible. To that end, “we were going to have to be a place that offered them limitless opportunity,” she said. “That would mean being able to extend partnerships and expand partnerships, which in turn would require us to continue to grow. It's kind of a self-perpetuating plan.”
They hired a consultant and did strategic planning to start bringing their vision to life. The consultant told them it’d take at least five years to get their plan in place, but Allen said they responded by saying, “Oh no, we're fast learners and we're going to get it done sooner than five years.”
The team even worked with the state in an effort to allow non-architects to become part owners in the firm, and that same year, 2012, it added the eight minority partners. The benefits of becoming an ESOP have been markedly noticeable.
According to the National Center for Employee Ownership , there are 306 ESOPs in Prairie Business’s three-state coverage area – the Dakotas and Minnesota – and 262,798 participants. Minnesota has the largest number with 225 ESOPs, followed by North Dakota with 58 and South Dakota with 23.
Moore Engineering, which became an ESOP in 1998, is one of them. The initiative at Moore, headquartered in Fargo, N.D., started as a “vehicle for retirement,” said Human Resource Director Joni Smith.
It was time for one of the owners to retire and that prompted the discussion, the same scenario that often sparks the succession planning topic. That’s what an ESOP basically is, she said, “an owner transition or succession planning” option.
Moore Engineering also is a better company today because of the ESOP, Smith said, in part because it has helped employees to feel more invested in their work because, frankly, they are more invested.
Like JLG, the ESOP also has gone a long way in helping Moore attract new talent to the company. More importantly, it helps retain them.
Employees at Moore can become fully invested after six years of employment, Smith said, but many want to stay long-term because of the benefits of the ESOP, not only financially but what it creates as a company culture.
“We're a civil engineering company. There are some stats out there that say how civil engineering companies that have an ESOP versus those that do not perform quite a bit better,” Smith said. “Part of that is financial, of course, and that's great, but it's also because of ownership. You're part owner of the company, or you own the company, and you realize that what you do affects the bottom line, that what you do makes a big difference and does have an impact.”
She said Moore wants people to retire with the company and the ESOP is a great incentive. It also helps create a strong team culture.
“I think we've always done a great job living our values, even back in the day when we were established in 1960, Smith said. “We didn't become an ESOP until 1998, but from 1960 to 1998 we were a fantastic company. But then we started to grow after we became an ESOP. We started to obtain more employees. … I think that what it really did is help us to maintain that sense of family, and that's important to us. … And what that really did is just help us to move the company forward and to let us be sustainable for our employees.”
The culture, helped by an ESOP, is what initially drew Jeremy Welsand to Border States Electric Supply.
Before moving to Fargo, where he now works as chief financial officer for Border States, Welsand lived in Minneapolis. He did some contract work for the company and noticed something different about its employees.
“I serviced Border States as an auditor, and I saw this organization, that they kind of did things a little differently. Their employees reacted differently; it was just a different experience,” he said. “I liked the organization because they were so different.”
He continues to see that level of dedication today, how employees go the extra mile. “Ultimately, they give that discretionary effort that goes above and beyond and that really makes the difference for customers for vendors for service providers,” he said.
Border States started its ESOP in 1984, but became 100% invested in 2000. Like other companies that have initiated an ESOP, it did so as part of a succession plan.
“That is typically how most ESOPs are formed,” Welsand said. “There's family ownership and they're looking for ways to continue the company. It depends on what your objectives are, if you want to take care of the people. If you have deep care of the people, an ESOP is a great way to do that.”
Welsand has been with the company now for 10 years, and has learned much more about ESOPs since joining. One thing he’s learned is that an ESOP definitely helps with one’s retirement plans, even going so far as helping some to retire early.
“It's a great retention tool when people figure out what the ESOP is, how it works, and how it can impact their life individually. People stick around,” he said.
“Retirement is one of those things where ability is probably more important than the actual retirement itself. We have a lot of people that retire in their 50s. … Nowadays many people have to continue working into their 60s. It's nice when people have choices. If they want to work, they can; but if they have the ability and the choice to retire early, that’s nice. Having choices in life is always better than not having choices.”
Andrew Weeks originally wrote this story for Prairie Business, a magazine headquartered at the Grand Forks Herald that is distributed throughout the Dakotas and Minnesota.
By the Numbers
To date, there are 306 Employee Stock Ownership Plans in Prairie Business’s three-state coverage area.
Minnesota: 225 ESOPs, 262,798 participants
North Dakota: 58 ESOPs, 14,558 participants
South Dakota: 23 ESOPs, 4,162 participants
Source: The National Center for Employee Ownership