Employee-owned businesses foster loyalty, pride

The opening of the new WinCo store in Bend has offered more than just a new option for grocery shopping, for the 140 people working there, it’s a chance to own a slice of the company.

WinCo is not the first or only employee-owned store in Bend. Bi-Mart, Newport Avenue Market and Deschutes Brewery all have employee-ownership programs. But the arrival of WinCo in Central Oregon puts a spotlight on a little-known business model.

What are the benefits of converting to an employee-ownership program and is it worth working for one? The benefits are pretty simple, really. It offers financial security for employees who stick with the company for the long haul. The potential is there for six-figure payouts and even a comfortable retirement.

“We have some people already retire, at full retirement age they are fully vested,” said Lauren Johnson, chief executive of Newport Avenue Market, which has 180 employees in Bend and related stores in Terrebonne and Sisters. “It has really been a game-changer for a few of our folks; it is pretty exciting.”

The compensation is made through an employee stock ownership plan, commonly referred to as an ESOP. Company profits are funneled into the ESOP to be shared among employees based on their salary and time with the company.

Unlike the sometimes volatile share price of stocks on a stock exchange like the NYSE, share prices for employee-owner stores are largely static. They change periodically after a review of company performance by a third-party evaluator.

Just how much profit gets shifted into shares varies by company, but in the case of WinCo, an equivalent of 20% of an employee’s earnings are placed into an ESOP account. The funds are taken from profits made by the company, not the employee’s salary.

For example, if an employee-owner earns $35,000 in wages in a year, WinCo adds $7,000 worth of shares into the employee’s ESOP account. As the share price increases, that can translate into big earnings when the ESOP accounts are cashed in, which occurs when the employee leaves the company or retires.

Not everyone is eligible — there is typically an age minimum and also a required minimum of hours. In the case of WinCo, workers must be 19 years old and work 500 hours within six months of employment. At Newport Avenue Market, it’s 21 years and 1,000 hours.

There is a bit of a learning curve for the program, said Erin Rankin, a spokesperson for Deschutes Brewery, which launched its ESOP in 2012.

“The plan is not very intuitive so initially, it took some time to get all employees up to speed on the details of the plan and how this benefit impacts each of them as individuals,” said Rankin.

There’s another catch. The ESOP “bonus” does not entirely belong to the employee to start — a percentage of the funds are forfeited if an employee quits the job before they are “fully vested.” In the case of WinCo and Deschutes Brewery, employees are 100% vested after six years, meaning that after six years they can keep 100% of their ESOP bonus.

“The stock grows in value much like traditional stock,” said Steve Corbin, store manager of the WinCo in Bend. “The more shares you have the more of WinCo’s profits are passed on to you.”

That’s a big incentive for workers to keep their jobs, greatly reducing employee turnover and training costs.

“We see greater company loyalty and experience lower rates of staff turnover because many of our employee-owners feel invested in a career with us,” said Don Leber, vice president of advertising and marketing with Bi-Mart.

In addition to company shares that can be cashed out, WinCo and most other employee-owned companies also offer a 401k plan. For those edging toward retirement, the combination of the 401k plus the ESOP account creates a nice nest egg.

“So many people I know struggle to save for retirement,” said Corbin “There was a time I was the same. At WinCo, the worry is removed, and it’s as easy as punching in and doing your job.”

Standard benefits apply too. Most ESOP companies have competitive benefits packages that include insurance, paid holidays and vacation time, tuition reimbursement, and short-term disability.

That all sounds great for workers, but what’s in it for the business owners? Some companies, such as Deschutes Brewery, say it’s just “the right thing to do.”

“The owners felt like it was only fair, to connect that culture with the economics of ownership,” said Rankin. “It’s a way to share the success of the brewery with employees and further develop the ownership attitude where people share a greater responsibility for the future of the company.”

Roger Lee, executive director of Economic Development for Central Oregon, said when business owners offer a portion of their company for distribution to employees, there can be advantageous tax and liquidity implications.

“When the stock acquisition for employees happens, these are often leveraged with internal loans which repay owners and employees from profits,” said Lee.

Other benefits for owners are sometimes less easy to quantify. But the general belief is that workers who also own a piece of the company are incentivized to do a better job and be more dedicated to their trade.

“We think the influence of employee-ownership creates an atmosphere of service that improves everyone’s performance,” said Leber, from Bi-Mart. “It may not be for everyone or every business, but we stand behind the idea that building a strong relationship between employees and the company pays dividends to everyone involved.”

Johnson from Newport Avenue Market said her workers were always proud of their jobs but after the company transitioned to an employee-owner model in 2015, that sense of pride was elevated.

“They have the mindset that is their company too. There is a greater incentive to look sharp and keep the business clean because they know they have a vested interest in the success of the business,” said Johnson.

Most importantly, said Johnson, employee-ownership has impacted the patrons who visit the store, as well as the employee-owners. The feeling that more people are benefiting from the success of the store simply permeates a positive vibe.

“ESOP has been a really important thing for our community,” said Johnson. “Multiple generations of families have worked here. To be able to take care of our friends and neighbors was the driving force behind our decision.”

As seen in The Bulletin and written by Michael Kohn.