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Employee-owned companies: Sharing in the risks and rewards of ownership

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neal tire

Neal Tire in Herrin, started by the Neal family in 1925, has always been employee owned and operated. It has 25 locations in Illinois, Indiana and Kentucky and carries Bridgestone, Firestone, Cooper Tires, Carlisle, Goodyear, Kelly, Multi-Mile, Pro Comp Tires, Mickey Thompson, Dayton, Kenda, Sumitomo, Alliance, Yokohama and Titan brands.

Local large and small companies are enjoying the profits and benefits from being employee owned.

Employee stock ownership plans, or ESOPs, allow many employees to own or buy their companies.

The ESOP acts as a trust for the employees. While each company may be different, a committee of employees makes decisions about the company. Profits from the company are given to employees through their 401k plans, which can be invested in company stock and employees can access at retirement.

The employee and the employee’s money are both invested in the company.

A.J. Carr, manager at employee-owned Neal Tire in Herrin, said there are many benefits to being employee owned.

“The benefits are far greater than a corporate-owned business,” Carr said. “Employees receive stocks at no cost to them, and health and medical benefits far outweigh anything from other companies,” Carr said.

The company, started by the Neal family in 1925, has always been employee owned and operated. It has 25 locations in Illinois, Indiana and Kentucky and carries Bridgestone, Firestone, Cooper Tires, Carlisle, Goodyear, Kelly, Multi-Mile, Pro Comp Tires, Mickey Thompson, Dayton, Kenda, Sumitomo, Alliance, Yokohama and Titan brands.

At Neal Tire, an employee committee, including a mix of management and non-management employees, helps make company decisions and looks for ways to improve stock shares.

According to the Employee Owned S Corporations of America, ESCA, website in 1998, private companies pressed Congress to let their workers (so-called S corporations) also benefit from employee ownership.

Today there are more than 2,600 S corporation ESOPs around the country. Employee-owners at ESCA companies in Illinois number more than 9,000 with over 15 employee-owned companies in Illinois. In addition, there are 20-plus employee-owned companies which operate in Illinois.

Employee ownership has many benefits besides a say in the company and stock options.

Employee ownership can also protect the company from unwanted takeovers, according to Stephanie Silverman, president and executive director of Employee Owned S Corporations of America.

“Many times, when the owner of a private business looks to retire, selling that company can be difficult, especially during a slow economy,” Silverman said. “When the company can be transitioned to an ESOP, it remains whole, vibrant, in the community.”

Bottom line. Employees stay employed.

“That’s a big relief for workers who are worried that their company might otherwise be sold to an unknown buyer, perhaps a foreign entity, and split apart or sold off in pieces with little regard for the workers or the community,” she said.

According to Silverman, S ESOPs were created in Washington D.C.

“Congress authorized this unique structure, and so the S ESOP community of businesses, including many in Illinois, are always concerned about potential, inadvertent policy harms that could befall S ESOPs,” Silverman said. “Most concerning is that, since these are creatures of tax policy, any major overhaul of the tax code could yield changes that would undercut S ESOPs and make them less viable. That said, S ESOP companies have many allies in Congress, and there is legislation now pending (S. 742 in the Senate, H.R. 4837 in the House) that would help make this structure an option for many more companies whose employee owners could benefit from being part of an S ESOP.”

S ESOPS offer many benefits, according to Silverman.

• Retirement account balances are three to five times higher than the average 401k.

• $14 billion in new savings each year for workers.

• While nearly 46 percent of working Americans do not have access to an employer-sponsored retirement savings plan, all S corporation ESOP participants have a plan which is wholly funded by their companies.

• On net, employment among the surveyed S ESOP firms increased over 60 percent from 2001 to 2011 as compared to zero job growth in the private sector as a whole.

• S ESOP companies weather the economic storms better than their non-ESOP counterparts in job creation and preservation.

• Employee ownership has helped preserve jobs in the hard-hit manufacturing industry.

• Every year, S ESOPs’ higher productivity, profitability, job stability and job growth generate a collective $19 billion in economic value that otherwise would not exist.

That higher productivity, job stability and job growth has propelled employee-owned HDR, a leader in academic, civic, corporate, health care, justice and science and technology architecture, into the global market.

The firm, with branches in Murphysboro, Springfield and Chicago, also works in a variety of fields -- from drinking water projects, health care, oil and gas, power, energy, science and technology, transportation, waste management, resource management, water resources and fisheries and interior design to military design.

The firm has more than 8,000 employees and 200 offices around the world.

HDR, which was founded in 1917, has been employee owned since 1997, when the CEO led an employee buyout.

HDR designed the longest continuous bridge in the Illinois bridge system on I-270 over the Chain of Rocks Canal, the Mississippi shipping canal.

Rex Fisher, senior vice president at HDR, attributes employee ownership to the company's success.

“That ownership and motivation when you are an owner makes you invested in success,” Fisher said. “We believe that’s why we’ve risen to the top.”

No one employee owns more than 3 percent. Once a year, employees can invest money from their 401k in HDR stock.

“It’s a great business model,” Fisher said. “As an employee said, ‘When is the last time you washed a rental car?’”

Employees are invested financially and emotionally in their company.

One of the nation’s largest ESOPs has local facilities.

Ferrellgas, which supplies local homes, business and agricultural with propane gas, has locations in Anna, Du Quoin and Marion.

The company has an additional 39 locations in Illinois with 176 employees, and there are 3,600 employees nationwide. The company is also celebrating its 75th anniversary this year.

“We are somewhat unique among companies that have formed an employee stock ownership program,” said Scott Brockelmeyer, company spokesperson. “We are also publicly traded on the New York Stock Exchange since 1998.”

According to Brockelmeyer, when company owner Jim Ferrell sold the company to the employees, the value of the stock shares was $4.10. Now the shares are $28.70.

“The research that we conducted at the time said that companies that have an employee-ownership plan have employees more mindful of very important things, like expenses and customer services,” Brockelmeyer said. “That’s a benefit we see every day.”

Twice a year, stocks are put into employee accounts.

“It is a unique retirement benefit. We offer a 401k and a company match,” he said.

According to Brockelmeyer, employees see their relationship with the company differently.

“I am an employee owner in the business, and I am going to treat it as my own,” Brockelmeyer said. “Our folks go the extra mile to treat that customer as their own.”

The employees have a chance to impact their future every day.

“That’s the employee-ownership culture. It’s very powerful,” Brockelmeyer said. “It makes people think and act and make important business because they have a vested interest in the company.”

Carr agrees that when employees have a stake in the business, it shows.

“They definitely take a lot of pride in their work,” he said.

He told the story of a recent new hire, who has worked for several other companies, and says Neal Tire is the best company he has ever worked for. Carr agrees. “It is a really good company to work for,” he said. “We take a lot of pride in helping customers. They are the reason we are here.”

According to Carr, the company is motivated to look for ways to impress customers. “We now have a Keurig coffee machine and have ordered a popcorn machine and a small fridge,” he said. “We also have a lot of giveaways, including Miners tickets. We are here for the customer. Everything is about the customer.”

Happy customers will keep coming back, which means more work for the employee-owned company. According to Fisher, employee-owned companies are important to the economy and to the employees themselves.

“There is no debate. Employee-owned companies have been more successful, in good times and bad,” Fisher said. “Employee-owned companies can do well.”

DEB SAUERHAGE is a correspondent for Southern Business Journal.

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