Employees now control about 8% of corporate equity in American companies, and employee stock-ownership plans now cover about 6,500 companies and 14 million participants, according to the National Center for Employee Ownership. But as motivational as this fact might seem to American workers in the aggregate, it doesn’t mean the job of running one of these outfits is a cakewalk.
Brian Baker has been president and CEO of Sentry Equipment, in Oconomowoc, Wisconsin, since 2012, but the company’s employees — now numbering about 200 — have owned 100% of the maker of process-enhancement equipment since 1986. They each get above-and-beyond compensation in company stock each year of 8% of their pay, but sometimes it’s hard for Baker to “connect the dots” between the benefits of an ESOP and presumed resulting motivation for employee-owners.
“To build an employee-owned culture, you have to build on a shared mission, vision and values,” says Baker, who joined Sentry Equipment as CFO 17 years before he ascended to CEO. “What do we do to make the world better? You want to tie into that. It’s not about coming into the factory every day to make a piece of equipment, but to make sure the food supply is solid” through making high-quality equipment that helps food companies and optimize their own manufacturing processes. others keep track of their processes.
ESOPs were relatively novel when Sentry Equipment’s founding Henszey family transferred ownership to employees nearly 40 years ago. Many other companies have joined Sentry Equipment in the structure since then, but Baker has developed some approaches and insights to managing an ESOP that other chiefs could learn from:
Don’t overestimate it. Research shows that ESOP companies “serve customers better than non-employee-owned companies,” Baker says, but chiefs can’t rely on that fact to count for much with employees. It’s not really even a starting point.
“People that own a piece of the place they work simply care more and try harder,” he says. “They’re more engaged in serving customers. But you really need to start by making people feel valued and having a culture of learning and continuous improvement, to make people feel they’re part of something bigger. Then you can throw the lure of employee ownership on top of that.”
Explain the incentive. Workers need to be reminded how an ESOP benefits them beyond collecting their stock disbursements that, in the case of Sentry Equipment at least, have come in annually like clockwork.
One advantage is that, as owners, Sentry Equipment employees have access to all the financial information about their company and how it is performing, as well as an understanding of the company’s strategy. Most private employers feel no compunction to share that with staff.
Also, employee-owners have an incentive to help the company excel. “Employees make their decisions about how to approach work, and we try to show them that you can make those decisions to serve customers better and make them more efficient, and that will translate into a stronger retirement plan for you,” Baker says.
People are swayed by that logic only “to varying degrees,” he says. “It’s like a bell curve: 15 to 20% of folks are all in, 65% are kind of in, and a few people are just not in at all. But as long as they’re doing their job, there’s no problem with that.”
Talk up input. Sentry Equipment owners “don’t get a vote, but they have a say” in how the company is run, Baker says. The company emphasizes two-way communication through “a good management system that cascades information down, and then also captures input from the ground up.”
The strength of that system comes from regular meetings up and down and across the organizational structure. “There’s nothing catchy about it,” Baker says. “We just have a good cadence.”
Use it in recruiting. Offering an ESOP can be a key lure in a manufacturing job market that remains tight, especially in an area like suburban Milwaukee that is choked with factories.
But some education is required. “Everyone’s in favor of employee ownership; it’s hard to find people who think it’s a bad idea,” Baker said. “But it’s hard sometimes if you’re a person in your 20s or 30s. People can tell you how great the plan is, but if they think, ‘I’m not going to get my cash until I leave or retire,’ that’s a harder sell. Once you get them in the door, you can start educating them a bit, and at some point, they see the light.
“But we have to make Sentry Equipment a great place to work on its own, without referring to employee ownership. So we have a participative management style, very fair and generous people, and a very transparent culture.”
Run a worthy operation. Employees want to know that what they own is worth owning, so Baker believes operating a “world-class factory” is key. “We make a lot of equipment in small batches, and one thing we’ve been able to do is incorporate a lot of technology,” he says. “We have several robotically fed machining centers, and one work cell with five machines that’s tended by one or two employees.
“Our plant is beautiful, well lit, air-conditioned, and it’s highly skilled manufacturing work that’s not repetitive, so people can use their skills and embrace technology as well.”