In this era when mergers and consolidations are the norm and offshoring sends jobs overseas, there’s a business model that enables owners to cash out while not only keeping their companies in place and intact but also turns their employees into owners.
ESOPs (Employee Stock Ownership Plans) are nothing new. The first one was established in the U.S. in 1957, but the concept gained traction in 1974 when Congress passed ERISA (the Employment Retirement Income Security Act).
As you’ll see in this issue of OLP, there are at least three ESOPs in operation in the optical field—Walman Optical, Salem Distributing and NCC Automated Systems. We spoke to representatives of all three, and none of them had anything negative to say about this business model.
But the benefits are numerous and include increased employee productivity and company profitability, the ability to retain control of your company while selling your stock in a tax-free sale, receiving tax-free proceeds greater than from a sale to an outside buyer, and the opportunity to repay the debt with tax deductible or tax-free dollars. And, when your employees cash out their stock at retirement, they are likely to be taxed at a lower rate than they would have been during their employ.
Other employee benefits include greater attachment, loyalty, participation in decision making and satisfaction with influence at the workplace, higher pay and a willingness to work hard with a lower chance of turnover and greater job security.
Studies have determined that ESOPs appear to increase sales, employment and sales per employee by about 2.3% to 2.4% per year over what would have been expected absent an ESOP.
In addition, when interviewing these optical ESOPs, they stressed the opportunity to keep their companies in the U.S. Walman expressed that it is an American company “keeping jobs here and investing here,” while Salem feels that turning the company into an ESOP enabled it to keep its jobs in its community of Winston-Salem, NC.
It appears that being an ESOP is a winning model all around.
John Sailer is VP, editorial of First Vision Media Group. JS@VisionCareProducts.com