Paducah Bank and Trust, based in Paducah, Kentucky, has made employee ownership a core concept in how the company is run. The bank is mostly family owned and operates as an S corporation. It has six locations and 168 employees. In 1997, two of the largest banks in Paducah announced that they were selling to even larger out-of-state banks. That left Paducah Bank as the only locally-owned financial institution remaining in Paducah.
To remain competitive, Paducah Bank enriched its product offerings and further developed an attitude of total commitment to its customers. The bank looked at ways to engage all employees in helping customers understand its products and services, and reemphasized its commitment to the community. In 1991, as part of its plan to creative a more innovative workplace, Paducah Bank created an ESOP.
The ESOP has a 401(k) allowing employees to defer into the plan and choose their investments, including company stock. ESOP ownership has hovered around 20%. The ownership varies principally due to buybacks upon the retirement of participants. Sometimes the plan buys back the shares and reallocates them; sometimes the company buys back the shares, or some combination of the two. This flexibility allows the company to maintain a targeted level of company contributions to the plan.
The plan is not leveraged. The company declares a corporate-wide bonus at the end of the year, the amount to be determined by performance goals. Half of this amount is included in a payroll cash bonus, while the other half is contributed to the ESOP/401(k) plan to purchase stock. The company contribution has averaged several percentage points of pay per year.
The ESOP is not just a financial benefit at the bank; it is part of an organizational culture that seeks employee involvement in generating ideas for sales and service, employee well-being, and community engagement. CEO Joe Frampton told us that “once each owner-employee understands that they own a piece of the Company, then their thought process and behaviors change. We always promote the concept that with each interaction—fellow employee, customer or in the community—each one of us should ‘think like an owner.’ Thus, you do what is necessary to protect corporate assets, serve and assist each customer, and support your co-owners. Such behavior, we believe, leads to profitable growth. Our record of steady, profitable, and growing performance over time supports that belief. Happy owner-employees tend to remain with the bank thus reducing recruitment and training expense. Our combined ESOP and 401(k) plan now has even created some employee-owner millionaires. Our longest tenured owner-employee just retired in February after 43 years of service.”
In 2002, the bank initiated a new customer service culture, what it called their “Owners’ Commitment.” Employees participated in the creation of the company credo, motto, and vision, and customer service culture the bank would need to be the premier provider of financial resources.
In 2002 the management team began an initiative to take the company from “good to great,” modelled after the ideas in Jim Collins’s book of the same name. All employees received the book, and were broken up into discussion groups to talk about how it applies to the bank’s culture. Every new employee now receives a copy and participates in a reading/discussion group as well. In 2003, a Good to Great Council was formed to identify the company’s core values, which it presented to the board in 2004 as “people, moral soundness, culture, independently owned, and community involvement.” In 2005, the team identified its “hedgehog concept,” the things they believe the company can be best in the world at, which they determined were the ability to attract, retain, and develop customers and employees.
Frampton says that the ways in which they engage employees has evolved. The Good to Great Council no longer operates, but now there is WOW University. He explains that “Wow U was created in 2019 to enhance the client experience, to challenge the norm of how a community bank serves its customers, and to create the most innovative and energetic atmosphere for our team. While much of WOW U’s focus is on the client experience, the curriculum is created to help our team discover the best version of themselves creating happiness and an exceptional client experience.” Employees are empowered to make decisions while never losing focus on the client.
Paducah Bank brought Google’s Search Inside Yourself Leadership Institute’s intelligence training into its workplace to help create a more trusting, effective team and compassionate workplace culture. The result was what they call the “The Seven Pillars of WOW” (“WOW is a Paducah Bank theme they carry through to customer service, marketing, their web site, and their business model). The pillars are emotional, physical, financial, intellectual, social, occupational, and environmental. Twenty-three bank teammates joined together to create the foundations of the WOW Teammate Wellness Initiative, committing to be WOW Being advocates and to their own well-being and that of each teammate. Together they created the framework of resources for all seven pillars to be offered through the WOW Being Initiative.
Unusually, the bank recognizes that money is not just a financial issue. People relate to it in a personal way that reflects their values, goals, and even their spiritual aims. The bank believes that helping employees understand this and providing them with generous financial benefits makes them better stewards of their customers’ money as well.
All of these commitments are noteworthy in themselves, but what really makes Paducah stand out is the extent to which these ideas were driven from the bottom up by employees.