SAFE Boats International Takes Ownership

Employees have long taken ownership and pride in the work they do at SAFE Boats International in Bremerton and Tacoma, where they build high-performance boats primarily for the military, Coast Guard, police and fire first responders, and other uniformed personnel.

“Our team has always really felt that mission,” said Richard Schwarz, CEO of SAFE Boats, which is named for its wrap-around collar design — Secure Around Flotation Equipped. “There’s a purpose behind the company and the customers that we serve,” he said, adding employees pride themselves in building the best boats for people in uniform doing important and dangerous work. Since March 2023, the company’s nearly 300 employees have even more reason to take pride in their work — every one of them was made an owner in the company when SAFE Boats transitioned to an employee stock ownership plan, or ESOP.

An ESOP is an employee retirement plan that allows employees to own shares in the business and benefit from the shares’ growth in value over time, the company noted in announcing the ESOP’s completion last year. Employees got their first ownership statements this summer showing the initial value of their shares.

“When I walk out on the production floor, I do sense a different level of energy and excitement,” Schwarz said. “There is a noticeable — I call it a buzz — but it does feel like people are engaged in thinking about what they do in lots of small ways because the tangible results of their efforts are not benefiting an outside investor.”

SAFE Boats, already with lower attrition rates than industry benchmarks, has seen turnover decrease even more since the ESOP’s implementation, he said. Additionally, the company is hiring to accommodate a surge in business for its vessels, which range in size from 21 to 100-plus feet. It had about 50 employees in Tacoma and 235 in Bremerton in mid-August.

“People feel like they have more of a voice, more influence, and because we’re talking to them so much more,” he said of sharing quarterly financial results, sales and business development activity, and more. “I think they’re feeling more connected in that way as well,” seeing the company aligned with their interests.

Energy on the Floor

Employees, including one who joined just before the ESOP took effect and one who’s worked at the company most of its 28 years, say the bounce in workers’ steps is real.

Frank Heinrich, a special projects manager at SAFE Boats in Bremerton, has worked for the company 22 years and is thrilled with the ESOP.

“I think the biggest thing is knowing that what we do every day can make a direct impact to the team members’ share prices,” he said. “I mean, that’s pretty amazing.”

It reflects the company’s longtime commitment to employees to transfer ownership to them, Heinrich said.

“There’s a lot of people here that are very dedicated and very bought into our mission, our values, and it’s cool to see that essentially come full circle and start showing that everything that we do, every little cup of hardware that we decide to either sort or throw away, is going to impact us all in a positive or negative way,” he said. “I think a lot of the tenured team members that have stuck through for many years really see that as a positive thing. It’s motivation.”

It’s rewarding to see people get more engaged with the continuous improvement side of the business — things employees can work on together to improve build times, reduce material costs, eliminate bottlenecks in information flow — Heinrich said, citing a large uptick in people involved in those exercises.

SAFE Boats employees take pride in building vessels like these for uniformed personnel around the world, the company’s leader says.

Heinrich also sits on the company’s Employee Ownership Advisory Committee, which comprises employees who help inform colleagues about the ESOP, meet with the company’s board, and confer with the ESOP trustee — all part of keeping communication lines open for employee owners.

Sam Ginn, who joined the company two months before the ESOP took effect, also sees the effect on employees.

“Everybody on the floor, they certainly have more pep in their step,” said Ginn, a maintenance tech who maintains the Tacoma facility, including tools and equipment. “They’re watching out for waste, people are starting to talk about really sticking around long-term; it’s just been really great for that. I certainly appreciate it. My mindset is, ‘OK, this is great now, but how much better can this be six, seven, eight, nine, 10 years from now, 15 years from now?’ Getting in as early as I did is just absolutely amazing. It’s been a huge blessing.”

Heinrich calls employee ownership a “dream-come-true scenario.” When the company’s previous controlling shareholder was looking to sell and ownership transitions were being discussed, the employee ownership option seemed least likely, he said.

He credited Schwarz and the leadership team’s dedication to advancing the ESOP.

“In the end, I’m standing here going, ‘Oh my gosh, this is like the best possible outcome that ever could have happened,’” Heinrich said.

Complex, But Worth It

ESOPs are challenging, complicated, and can be difficult and expensive to implement and manage because of ongoing requirements from the U.S. Department of Labor and the way they’re structured, Schwarz said.

“It does take a big commitment, and that’s not right for everybody,” he said. “But for SAFE Boats and for some of the other companies that we’ve interacted with, it’s a form of ownership, a way of creating opportunity, helping our team build wealth in ways that in this world is really unusual, but it is creating something for our team which is, at any level, kind of life-changing.”

In the right circumstances, employee ownership is an “amazing tool” for addressing issues such as income inequality and wealth inequity, he said. SAFE Boats was fortunate to have an owner willing to support the ESOP transition, the company was able to obtain financing for the ESOP to buy out the seller, and the company had a dedicated team of employees underlying the plan, he said.

A minority owner provided the loan for the ESOP to buy the company, a process and terms of which were overseen by the ESOP trustee. As the ESOP pays down the loan with company profits, a portion of the company’s total shares is allocated to employee accounts, increasing their value. Numerous employee education meetings occurred leading up to and after the March 2023 close of the ESOP, Schwarz said.

This year, when the normal year-end company audit occurred, an external company appraisal was conducted to determine the company’s first valuation under the ESOP. That set the stock price, he said.

Simultaneously, the ESOP trustee used employee census data to calculate share allocations per employee. SAFE is basing shares on employee compensation levels, meaning total shares allocated to employees are based on each employee’s percentage of the company’s total annual compensation for the year. This summer, employees received their first stock statement showing how many shares they were allocated for 2023 and the shares’ value, based on determinations by the outside appraiser and trustee.

“I think that’s where we had always hoped that the team would really get that light bulb moment where they were staring at something in writing,” Schwarz said. “It was no longer just a promise; it was no longer something that was theoretical, but it was now something that was tangible.”

That was followed by employee meetings on topics such as how to read an ESOP stock statement and what it means, he said. Employees’ shares vest on a graduated schedule of about 20% per year, not unlike a 401(k), but some longer-term employees’ vesting schedule was accelerated to credit them for years served, Schwarz said.

“Just like the 401(k) matching contribution, you want to try to tie team members to the company, so the longer they stay, the more shares they get,” he said, putting the total vesting schedule at about six years. Beyond that, employees are fully vested.

If an employee leaves after that, the company purchases the employee’s shares at the current appraised value, after which the former employee can roll over their payout into an account such as a 401(k) or IRA. SAFE Boats also has a 401(k) and matching contribution, making the ESOP a supplemental retirement plan.

If someone retires before they’re fully vested, there’s an accelerated vesting schedule to fully vest them upon retirement, Schwarz said. 

Unlike a 401(k), employees don’t contribute anything to the plan; they’re not buying shares, Schwarz said. “It’s something that is given to, or earned by the employees, through the work they do for the company,” he said.

ESOPS by the Numbers

Nationally, there were an estimated 6,247 ESOPs with 10.7 million employees in 2021, the latest data available, according to figures provided by the nonprofit Employee Ownership Foundation, which is affiliated with The ESOP Association, a nonprofit trade association. Foundation data is provided by the Institute for the Study of Employee Ownership and Profit Sharing at Rutgers University.

The manufacturing sector comprised the most ESOPs, followed by the professional, scientific, and technical services sector at No. 2, and construction at No. 3, the foundation’s website shows. It also showed $2.09 trillion in ESOP assets, and average assets of $165,000 per employee.

In Washington state, per so-called Form 5500 data in 2021 from the U.S. Department of Labor provided by The ESOP Association, there were 103 ESOPs.

Schwarz has been an ESOP proponent since working at an employee-owned company out of college. SAFE Boats’ transition also was aided by company co-founder and shareholder Scott Peterson, who supported the concept of giving ownership to employees who made the company successful.

In a statement when the ESOP closed last year, Peterson said, “It has always been our dream and our vision to make SAFE Boats International about our team and the community we live in. Transitioning to a 100% employee-owned company creates the foundation to become a true Northwest legacy. This allows an incredibly talented and dedicated SAFE Boats team to continue supporting the men and women in uniform around the world for generations to come.”

For Schwarz, helping transition SAFE Boats to employee ownership aligns the long-term futures of employees and the company. It removes possible conflicts between short-term profits for an investor versus long-term strategy for the company.

“I’m incredibly fortunate to have had the opportunity to do that and can’t imagine a more satisfying position to be in than getting to lead SAFE Boats through this,” he said.

“We’re certainly excited to see this transition, and I think employee ownership is really going to be a game-changer for the company, for our team,” Schwarz, an admitted evangelist for employee ownership, said. “It’s something that I think that we really believe adds a lot of value for the team, for the company, for the economy, and has a really positive impact on the community.”

As orginally seen in South Sound Business and written by John Stearns.