The Employee Ownership Update
October 1, 1997
Inc. 500 Companies Share OwnershipAccording to a survey of the Inc. magazine 500, the fastest-growing 500 closely held companies in the U.S., sharing ownership is an important part of this entrepreneurial group's culture. Twenty-eight percent offer an ESOP and 26% offer stock options to all full-time employees. While there is probably some overlap in these numbers (some companies will do both or may confuse the terms), it seems safe to say that close to half of the 500 companies offer broad ownership. In 1992, these same companies had an average of just 17 employees, and only 9% offered an ESOP and 9% offered broad stock options; by 1997, their average employment had grown to 121. The number one company on the list is Optiva, a 338-employee manufacturer of electronic toothbrushes in Bellevue, WA. All its employees are eligible for stock options.
William Mercer Studies Assesses Popularity of Broad Stock OptionsA new study of the Wall Street Journal 350 by William M. Mercer shows that 10.6% of these large companies have broad stock option plans to which they either have made allocations or will this year. Another 20% of the companies have broad-based plans on paper, but have yet to make a distribution beyond the executive level. Mercer defines "broad-based" as going to at least 50% of a company's work force.
Employee Ownership Entrepreneur Creates Owners Out of PrisonersOne of the most remarkable people in the employee ownership community is Fred Braun. Braun has bought four companies over the last 17 years, three of which were in bankruptcy. He sets up an ESOP as soon as the companies start making a profit, then sells entirely to the ESOP when he decides to buy another business. Each company he has bought has grown to over $10 million in sales, and they have collectively added hundreds of jobs. Once the companies are earning solid profits again, he sells out entirely to the ESOP. Employees voted to sell the first company he bought, Atkinson Products, after five years of the ESOP. The sale generated an average payout of $80,000 per worker.
Even more remarkable, however, is that three of the companies (Zephyr Products, Heatron, and Henke Manufacturing, his current company) have a program to employ prisoners on work release. At Heatron, a manufacturing of heating equipment, about 40% of the work force comes from this program. Work release employees come from Leavenworth Prison and typically stay 18 to 26 months. They have an accelerated ESOP vesting schedule that fully vests in three years and partially vests along the way. The companies pay $5 to $6 per hour to the workers, who return to the prison after work. They also train them and help them find new jobs when their prison terms are over. There are no government subsidies. Braun is now heading a national effort to replicate the work release program elsewhere.
Author biography and other columns in this series