Apex Education

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Let’s Learn About ESOPs

1. Employee Ownership: What's The Big Deal?

Apex Plumbing became 100% employee-owned in May 2022. This means that the company you and I work at is also the company you and I own a part of now. There is much to learn about the ins and outs and we will continue to grow and learn together. So, what’s the big deal? Let’s find out!

Employee ownership can be defined as a market-friendly, anti-inequality policy that improves outcomes for companies and provides workers with higher wages, more generous benefits, and greater job stability over time. It is one of the most impressive and rewarding structures possible which is why Brian and DeAnn opted for this when they prepared to retire. They wanted each person at Apex to continue to build the company and gain greater opportunities, financially and professionally. And because of this, the future is brighter than ever.

The primary form of employee ownership in the United States is the employee stock ownership plan or ESOP. Congress designed ESOPs in the 1970s to encourage owners of private companies to transfer ownership to employees at no cost to the employees themselves; instead, the owners are paid the full value of their shares by the ESOP, which borrows the money if necessary and repays the loan from company earnings.

Today, at 6,500 American companies, 10.5 million workers partially or wholly own their companies through this mechanism. Quantitative and qualitative research at the company level has shown that ESOP companies tend to grow faster and provide greater job stability than similar non-ESOP companies making ESOPs an effective tool to create and save jobs especially in vulnerable communities.

The results of a study conducted by the National Center for Employee Ownership (NCEO) revealed:

■Median household net wealth among respondents is 92% higher for employee- owners than for non-employee-owners. This disparity holds true for the great majority of subgroups analyzed, including single women, parents raising young children, non-college graduates, and workers of color.

■Employee-owners in this dataset have 33% higher median income from wages overall. This holds true at all wage levels ranging from a difference of $3,160 in annual wages for the lowest-paid employee-owners to an extra $5,000 for higher-wage workers.

■Employee-owners in this dataset have substantially more job stability than non- employee-owners: their median tenure with their current employer is 5.2 years, compared to 3.4 years for the non-employee-owners.

■For families with children ages 0 to 8 in their household, the employee-ownership advantage translates into median household net worth nearly twice that of those without employee ownership, nearly one full year of increased job stability, and $10,000 more in annual wages.

■Employee-owners of color in this data have 30% higher income from wages, 79% greater net household wealth, and median tenure in their current job 36% over non-employee-owners of color.

Additinally, a 2021 study by the NCEO with support from Employee-Owned S Corporations of America (ESCA) found that workers at S corporation ESOP companies had more retirement savings and more employer-side retirement contributions both before and during COVID-19, compared to companies offering only a 401(k) plan. S ESOP companies’ retirement contributions were 2.6 times that of companies offering only 401(k) plans. Additionally, the vast majority of total contributions to these ESOPs, 94%, were from employers, compared to 31% for 401(k) plans. Controlling for size, industry, and region, the study found that average S ESOP participant retirement balances were $67,000 higher than the comparison group. The study also found evidence that ESOP companies retained or created more jobs during 2020, again controlling for size, industry, and region.

A 2020 study conducted by the Rutgers School of Management and Labor Relations and the Employee Ownership Foundation found that employee owned companies outperformed non-employee owned companies in job retention, pay, and workplace health safety throughout the COVID-19 pandemic. The study found that ESOP companies were 3 to 4 times more likely to retain staff, less likely to make pay cuts (26.9% vs. 57.3%), and more likely to take protective measures against the spread of COVID-19 (98.3% vs. 88.9%).

This data is exciting for you and me. Working at Apex has already shown us that we have a well-built company with a great reputation, we’ve had consistent and healthy growth for a long time, and we get to work with our most committed and efficient team yet. Now, we get to add to this that our company will be part of building a brighter and even stronger company in our community for everyone involved.


2. Roles, Responsibilities, and Benefits of Ownership

“Employee-Owner” is the title every employee of an employee-owned company gets to take. It is a title that conveys that we own stock in the company we help to grow and shape each day. When Brian chose to retire, he determined that the best way to preserve the hard work and amazing company we have built was to convert the company to an Employee Stock Ownership Program (or ESOP, see previous section). This meant that when he sold his 100% share in the company a Trust was set up to keep and protect the shares that now belong to those employed at Apex. So, each of our names are already on a set number of shares just because we work at Apex. Technically speaking, the legal owner of these shares is the Apex Plumbing Employee Stock Ownership Trust. The trustee who Brian appointed to oversee the Trust is responsible for making sure your shares are allotted properly, fairly, and in accordance with all legal guidelines. We are actually a beneficiary of the Trust, and we have been handed the rights to the value of the ownership of your company. Though the value completely belongs to us, it is not the same as control. More on that in a moment.

How much money do I get as an employee-owner?

The value of the shares is what usually has most people wondering. When Brian sold the company, he had previously owned 100% of the shares. But, those shares have now been bought by Apex through a loan from the bank. The value of the shares Brian owned were determined by the value the bank placed on our company. Yet, the company did not have that money just sitting around. Therefore, as is typical in all business sales, a bank loan made it possible to buy all the shares. As this loan is paid back over the next 5 years in full, the value of each share grows every time a payment to the bank is made. This results in 100% of the business belonging to you and your fellow Apex team. You will get a yearly statement keeping you informed of how many shares you have and how much the shares are worth so you stay in the know as the company grows and becomes more successful. We know that retirement is a long way off for many of us. Depending on your age, you may not see the benefits of your ESOP shares immediately. Great news, though: the longer you stay with the company the more shares you’ll accumulate and the better set up you are for your future. Even better, your funds grow without any contributions from you – you don’t even have to think about it.

How much responsibility and control do I have as an employee-owner?

Even before Apex became an employee-owned company, the decisions that each individual made while doing their job each day affected the bottom line. For instance, there was one year where the gas line damages and OSHA fines prevented the company from being able to make necessary fleet vehicle and dump truck upgrades. Another instance was when a crew went above and beyond explaining to a concerned customer how we were going to finish a tough job and then left the job looking spotless. It resulted in neighbors calling us for business and our customer leaving a glowing review online for all to see. These are just two examples of the dozens of decisions we make every day to look out for the company’s bottom line or not. Stock ownership in an ESOP is meaningful because you participate in making the stock more valuable. Unlike shareholders of Coca-Cola or Apple who have no participation, everything you do in your role at Apex can positively or negatively affect the value of the company because the bottom line ultimately determines our stock price. Therefore, each of us as employee-owners have a lot of control and we benefit directly from the company being profitable.

Some employee-owners want to know why, since they are owners, they do not have more control over the decisions made at the company. Keep in mind that the ESOP is a free benefit. If we each paid for stock in the company, we could legitimately expect more rights. The simple way to put it is there is a difference between ownership and management. We’re all owners, but we aren’t all part of the executive management team. Management is a function; ownership is a financial stake. All owners contribute to the successes (and failures) of the company. But only the management team sets the vision for the future and decides what we will pursue to get there. Yet just because we may not be making higher-level decisions about the company doesn’t mean we don’t have an impact on how the company operates. A good way to look at it is that every company has employees with different layers of responsibility and authority. Tough decisions must be made to keep the company healthy and growing and stable. These decisions are made by those qualified and experienced to do so and their titles at the company reflect those qualifications. It is not feasible for everyone in the company to equally weigh in and make those decisions. Yet, Apex is truly committed to building a culture of sharing ideas, being open to regular feedback, and making sure everyone has a voice and knows their position and opinions truly matter. This is something we’re working towards and hope to engage each person more and more in the company as time goes on. Improving on the way you do your job and what you see in the company is so valuable so don’t hesitate to start communicating that with your manager anytime.



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