Q: What is shared ownership, and how do you structure it?
As the sole owner of Harrell Remodeling when I founded it in 1985, I felt that I had to start planning for what would happen if I were no longer available to work at the company later in my life, either for some unforeseen reason or by choice. In examining my options and seeing what other company owners had done in the industry, I felt the choices had narrowed down to the following:
Option 1: Bring in an outside buyer five years before retirement.
Downside: I thought that bringing in outside leadership after the existing team had built the company would destroy the company culture, which is important to the existing staff and me.
Option 2: Ask key management employees to contribute money to buy stock in the company, thus giving them all some “skin in the game.”
Downside: While I pay my staff well, the company has become very valuable over time, so much so that the key managers would not be able to purchase a significant amount of the stock.
Option 3 – and the option I ultimately chose: Set up an employee stock ownership plan that enables all employees can participate.
One downside of an ESOP is that more company-wide financial education has to happen early in the development of this plan, and it takes a few years to get ownership behavior from even very good staff. I also had some reservations about open book management.
But those reservations have since gone away. The reality is that the only numbers shared need to be those that the team can impact. For instance, you don’t have to give a line item of your salary in an open book financial sharing.
We executed this decision to set up an ESOP in 2001. I have been extremely happy with every employee’s matured thinking since that time.
The stock is paid for by the profits of the company, not out of anyone’s pocket. Since I already owned the profits, why would I use the profits to give away in stock to my employees? There are also some tax benefits set up to incent owners to offer ESOPs; over the long haul, these mutually benefit the company and the employee owners.
Finally, if the company continues long after I am gone, I will feel that I have left a legacy to the community and continuous employment for many people for multiple generations. What could make an entrepreneur happier than that?
I have seen some other owners just gift 10% of their stock to a key employee, but I like that the ESOP is more of an emotional decision. It’s also a long-term, all-inclusive approach.
-- Iris Harrell is CEO and president of Harrell Remodeling (www.harrell-remodeling.com), which she founded in 1985. Harrell Remodeling is an award-winning design/build company with nearly 50 employees and $11 million in revenues. Iris has received many awards and is also a popular speaker at industry events, where she encourages other remodeling contractors to hire women for non-traditional jobs.
Read Iris' other contributions or ask her a question.
