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The Employee Ownership Update

Corey Rosen

April 10, 2008

(Corey Rosen)

AECOM Continues Commitment to Broad Employee Ownership

One of the major employee-owned companies whose employee ownership character has flown under the radar for some time is AECOM Technology Corp., a Los Angeles-based global architecture and engineering company with 41,000 employees in more than 60 countries. In 1990, an ESOP bought the company, which then had 11,000 employees. In 2007, the company went public and is now listed on the NYSE. Its ESOP now owns about 15% of the company.

At a presentation at the Global Equity Organization's annual conference, Rod Musser of AECOM and Heidi Wilson of HBOS Employee Equity Solutions talked about how they created a share plan for all employees as the company expanded its global operations. Employees get a 10% match for their purchases of AECOM shares. To minimize administrative and tax costs, the plan is operated through an offshore trust on the Isle of Jersey.

It's Small Ideas That Matter

At the NCEO's sold-out annual conference in Chicago, keynote speaker Dean Schroeder, co-author of Ideas Are Free, talked about how his research with colleague Alan Robinson came to the surprising conclusion that what really distinguishes successful employee involvement systems is not the big breakthrough ideas that result but the accumulation of small ideas. Big ideas, Schroder said, can be easily copied by the competition, so they do not provide a sustainable advantage, necessary as they are to keep pace. Companies where employees generate hundreds or thousands of small ideas, however, create an edge that cannot be copied very easily. One company we know, VATEX, an ESOP-owned distributor of imprinted and embroidered promotional products, provides a good example. In their industry, everyone packs in dozens. But dozens are not natural numbers for people, and lots of errors are made in shipping. Some line workers at VATEX suggested they change to packing in tens. The result was a dramatic drop in errors and returns and a big boost in profit margins.

While some small ideas may end up having a big impact like this one, Schroeder said, two other benefits flow. First, the accumulation of small ideas can add up to substantial savings or new revenues. Second, cultures in which people are constantly coming up with small ideas create environments where big ideas are more likely to be generated as well, including from seemingly unlikely sources.

The key is not just to encourage people to come up with ideas (the suggestion box is at best a waste of time, he said) but to establish structures in which people are expected to generate ideas, a topic we have also discussed extensively in our publications.

Employee Ownership and Section 8(a) Minority Business Qualification

We are often asked if ESOP-owned companies can qualify for minority ownership status for federal Section 8(a) contract preferences if the majority of their beneficial ownership (as reflected in accounts held in the trust, allocated or vested) goes to qualifying minority employees. While a strong intuitive case could be made for this, the regulations do not provide much help. The ESOP must own less than 50%, and the remaining owners must be qualifying individuals. In other words, the beneficial ownership of ESOP assets is treated essentially as if it were owned by disqualified individuals.

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