Employee Stock Ownership Plans (ESOP) have gained prominence as a unique retirement benefit plan that creates an ownership structure for the employee.
Kyle Reading, President of Spuncast, says the decision to structure Spuncast as an ESOP stemmed from the need to attract and retain the best employees. It’s also become a powerful tool for enhancing company culture and performance, creating a win-win situation for employees, companies, and customers.
In this blog post, we’ll explore ESOPs and their advantages to employees and customers, looking specifically at the Spuncast ESOP model.
But first, learn about Spuncast’s journey to Employee Stock Ownership and how it has created an environment where employees thrive, and customers benefit from enhanced quality, reliability, and satisfaction:
Spuncast’s path to an ESOP-structured company
Founded in 1976 by three individuals with a centrifugal casting background, Spuncast began with producing simple, as-cast (raw), unheat-treated, unmachined castings.
Kyle, who’s been with the company for almost 20 years, says since then, the foundry has expanded its range of customers with continuous development of its capabilities.
But as the company got bigger, so did the demand for skilled workers.
After looking at all their options, the management team decided the unique benefits employee ownership provided would create an environment where the company and the workers could thrive.
It turned out it would also be better for their products because when employees became stakeholders, they often shared ideas for product improvements.
What is an ESOP?
An ESOP is a federally regulated employee benefit plan that allows employees to earn ownership interests in a company through shares of company stock.
That stake often increases the longer they stay with the company. When employees retire, leave, or die, their shares are repurchased by the ESOP for the value of the stock at that time. The funds can be rolled into other plans or cashed out, depending on the terms.
The information below highlights key customer and employee benefits.
Benefits to customers
In an ESOP-structured company, there is often significantly less turnover, creating consistency that benefits the customers. In addition, experienced employees know more about products and services, which leads to the following:
- Consistent Product Quality: A study by the US Government Accountability Office (GAO) shows the Dept. of Defence spends nearly half of its contracting budgets on ESOP-owned contractors because they consistently deliver “satisfactory” or better products.
- Reliable Productivity: NCEO stats highlight productivity increases on average by 4-5% in the year an ESOP is adopted by a company. This one-time jump is more than twice the average annual productivity growth of the U.S. economy.
- Better Customer Service: An article in Dayton Business Journal pointed out that long-term success for both the ESOP and the partners with whom they conduct business is paramount to the model.
4. Ongoing Community Growth: A Deloitte survey of their ESOP clients found growth often happened organically through product development and new customer channels rather than buy-outs, keeping jobs and profits in the community.
Benefits to employees
The National Center for Employee Ownership consistently gathers statistics on the benefits of ESOP companies.
Their Ownership Economy Report points out that employees enjoy things like:
- Financial Rewards: Workers ages 28-34 who worked in an ESOP company had 92% higher household net worth, 33% higher median income from wages, and 53% longer job tenure than non-ESOP workers in the same age demographic.
- Long-Term Job Security: Employee-owners’ median tenure with their current employer is 5.2 years, compared to 3.4 years for the non-employee-owners.
- Retirement Security: An ESOP has more than twice an Americans’ average total retirement balance nationally.
- Supportive Work Environment: Businesses with strong ESOP plans consistently dominate the Fortune magazine list of “100 Best Companies to Work for in America.”
How it works for a Spuncast employee
Spuncast launched its ESOP to enable its staff to become owners over time via contributions from company profits, with no out-of-pocket expenses to the employees.
They established the company ESOP in 2005 with an initial 53% purchase of Spuncast from the two major owners at the time.
Ultimately, the plan was for the company to become fully vested in the ESOP.
That goal was reached on October 30, 2021, when the ESOP purchased the remaining shares, and Spuncast became a 100% employee-owned and operated company.
“Education and communication for the employees is critical,” said Keri Fuiten, Spuncast’s Chief Financial Operator (CFO).
To ensure a clear understanding for the employee-owners, she hand delivers their statements and takes the time to explain the plan and the benefits they are receiving.
Communication starts with an explanation of the initial plan breakdown.
- After an employee is hired, they must meet specific ESOP eligibility requirements, like being full-time and having worked for Spuncast for a year.
- Employees become 100% vested after three years. The employee continues to receive shares each year until they retire.
- At that point, they receive annual payments over the next five years based on share value.
A commitment to ownership culture
Spuncast’s commitment to an ownership culture has raised the company’s value, improved efficiency, reduced costs, and increased employee tenure.
Kyle says Spuncast has become a more consistent business because of its high employee engagement and accountability.
As people near retirement and understand the financial benefits, he says it is proving to create that ownership mentality that makes a real difference.
Because it rewards employees when the foundry does well, he says it inspires continuous improvement and a desire to expand Spuncast’s capabilities.
“I believe that the self-accountability and collective performance of employee ownership creates motivation among the team to build leadership and technical skills that means we can offer our customers more.”
Why choose an ESOP foundry for your next project?
Employee ownership offers many benefits, including financial gains and intrinsic employee motivation. But it also benefits customers by creating a more engaged and committed workforce.
Ultimately, for customers, it boils down to the quality and service they receive. Finding that in a foundry means finding one that sweats the details, has proven processes, and makes an excellent casting by employees who care.
