By Sarah Binder
CEDAR RAPIDS—He could have sold the company to anyone, so he decided to sell it to his employees.
Jeff Hamilton, president and CEO of ESP International, bought the company in 1996 and grew it tenfold. Early this year, he revoked his status as majority shareholder so ESP could become 100-percent employee owned. The structure is an employee stock ownership plan (ESOP), which allows employees to own stock in the company, often at no charge, as part of their retirement plan.
ESP, headquartered at 5920 Dry Creek Lane NE, specializes in seals, rubber products and plastics for original equipment manufacturers (OEMs), including John Deere. After Mr. Hamilton took ownership of the company, he noticed the OEMs wanted to consolidate their supplier networks, so he expanded ESP’s services to include assembly, design, engineering and fabrication and added international offices in China, India and Taiwan. The company employs about 130 workers worldwide, with the bulk of those working in two Cedar Rapids locations.
A partial ESOP since 1998, ESP International’s Mr. Hamilton credited employees working with a sense of ownership as a factor in ESP’s growth. He recalled an employee who relocated his family to China to open the international office, and said he wasn’t sure if that would happen without employee owners.
“You get that feeling that people aren’t complacent in their jobs,” Mr. Hamilton said. “You constantly see the questions of, ‘how can we improve, how can we serve the customer better.’”
However, changing the ownership will not automatically change the office culture, he said.
Becky Streff, ESP International’s human resources manager, said the company invested significant resources into communicating the principles of the ESOP to employees.
“You can’t expect that just by doing a transaction the culture will change. You have to communicate and over-communicate, train and re-train,” she said.
In February and March, employees had small group meetings to discuss the change in ownership. In May and June, the company will host sessions on how to read the ESOP statements and provide one-on-one retirement planning. Trainings will continue throughout the year.
For new employees, a benefit of stock ownership might not be as easily understood as more traditional benefits, like a 401(k) matching plan, Ms. Streff said, which makes the training important.
However, some of ESP’s employees responded quickly to the benefits of the ESOP, she said. After working for manufacturing companies that have been sold, merged or closed, they appreciate the job stability an ESOP can bring, she said.
“What really seems to be resonating is that now they can work for themselves,” Ms. Streff said.
While ESOPs are relatively rare — the ESOP Association estimates there are 4,000 companies nationally which are 100 percent owned by an ESOP — Cedar Rapids is home to several prominent ESOP-owned companies. Examples include Van Meter, Inc., Apache Inc., CarePro Health Services and The Gazette Co.
“Fortunately, Cedar Rapids has some very good examples here,” Ms. Streff said. “The ESOP community is very open about sharing best practices.”
Mr. Hamilton was a partner at McGladrey, the fifth largest national provider of assurance, tax and consulting services, before purchasing ESP International. The accounting world was where he learned about the mechanics of an ESOP, before applying it in his own business.
“I saw a lot of businesses and how they were run,” he said. “You just develop a philosophy, if I had a business, how would I run it?”
While an ownership culture can help a company grow, Mr. Hamilton said growth can also be one of the biggest challenges in an ESOP. In times when recession or other external factors prevent a company from growing, employees can be discouraged when they see their stock values diminish. It is important to communicate that, like any other stock plan, the value of an ESOP will fluctuate, Mr. Hamilton said.
ESOPs can also be a type of succession planning. As many baby-boomer business owners prepare to retire, they worry about the future of their companies, Mr. Hamilton said. An ESOP with a strong management team can help ensure the company will remain locally-owned, he said.
Mr. Hamilton said he plans to remain with ESP for at least five more years.
“You want to give your good young management group an opportunity,” he said.