Regional firms find benefits of employee stock ownership

After a car crash killed both of her parents in 2000, Deb Anderson found herself trying to save the family business.

There were some big decisions for her and her three siblings. All had grown with Summers Manufacturing, based in Devils Lake, all held management positions, and all but Anderson were on the verge of retiring.

Several buyers approached the family with offers, but none fit what they wanted, which was to keep the agricultural equipment manufacturer in town and in nearby Maddock, N.D.

After consulting with their accountants, banker and attorney, Anderson said she and her siblings decided instead that the best way to go was an employee stock ownership plan, or an ESOP.

Besides ensuring a business stays locally-owned and operated, an ESOP also brings with it tax incentives. With a stake in the company, employees may also become more productive and less likely to quit, advocates of ESOPs say.

During the recession, employees at companies with ESOPs were four times less likely to be laid off during the recession than employees of other companies, according to the Employee Ownership Foundation.

Other companies in the region have also found ESOPs to be the best option.

Tammy Miller, CEO of Border States Electric in Grand Forks, said her company's profit tripled compared to industry peers and sales declined half as much. Her owner-employees made sacrifices to make that happen, she said. "They knew they needed to make some short-term sacrifices to produce results."

How it works

At Summers Manufacturing, the company contributes up to 25 percent of eligible wages each year to a trust fund, which purchases shares and distribute them to the 210 employees, according to Anderson.

Workers don't actually buy the shares themselves, but can cash it or roll it into an Individ-ual Retirement Account. Employees at Summers Manufacturing must work at the company at least 12 consecutive months and 1,000 hours to be eligible.

The company's stock has been returning 25 to 30 percent a year, according to Anderson.

In 2007, 42 years after Summers Manufacturing was founded by Anderson's father Harley Summers, the company became 100 percent employee owned. In April, the company was named 2012 Company of the Year in its chapter by the ESOP Association.

At Border States Electric, which became 100 percent employee owned in 2000, the compa-ny's annual compensation averages 12 percent.

Sue Ouellette, an operations manager, said she was able to retire at age 55 with the plan.

She's one of the company's 1,500 employee-owners across 13 states, 29 of which work at the Grand Forks office.

"Now, I'll be able to live pretty comfortably on it without having to worry too much, and not having to wait for Social Security to kick in," said Ouellette, who retired in March but will stay with the company temporarily until November.

In 2009, the Fargo-based independent electrical distributor, was recognized by the ESOP Association for sustaining its plan 25 years or more.

Drawbacks

The only drawback to ESOPs, Anderson said, is you have to share the wealth.

"But I don't see that as being a drawback, because everybody's benefitting," she said. "You share the stock with them, and they can see it go up or down. They can understand what affects the profit of the company, and therefore they're empowered to act like an owner and help figure out solutions."

Other limitations may include the cost of setting up the plan, particularly for smaller busi-nesses, and companies may have difficulty setting aside payouts for employees that retire or leave.

Jim Fristad, an ESOP trustee and vice president of engineering for Lunseth Plumbing and Heating Co. in Grand Forks, said in an email that converting to an ESOP is a fairly compli-cated maneuver. The company found the legal process lengthy and costly, he said.

The 77-year-old locally-owned and operated company moved to an ESOP a little more than a year ago. It has about 110 employees

Once they got started on the ESOP, though, they became convinced it was the right thing to do, Fristad said.

"The ESOP provides stability of ownership, providing job security, which is a good thing for employees and the community in which they live," he said. "With the ESOP, all partici-pants have a vested interest in the company and its vitality."

By the numbers: Employee Stock Ownership Plans

• There are 33 companies with ESOPs in North Dakota and 192 in Minnesota.

• The average member company in the ESOP Association has 159 employees.

• The average member company has held an ESOP in place for 13 years.

• About 99 percent of member companies are privately held.

• The average ownership of ESOP Association member companies is 65 percent.

• The ESOP Association represents about 1,400 ESOP companies nationally.

Source: ESOP Association, U.S. Department of Labor

Reach Johnson at (701) 780-1138 or send e-mail to jjohnson@gfherald.com .