'Stake in the game': Employee ownership plans can help a business thrive

Rick Scott has spent years making precise cuts in the wood used to build window frames at Thermo-Twin Industries Inc.’s assembly plant in Oakmont.

In 27 years, the millwork specialist also has created a nice nest egg through the company’s KSOP, a retirement plan that combines an employee stock ownership plan, known as an ESOP, with a 401(k) retirement plan.

“Hopefully, at the very end (retirement), I’ll cash out,” said Scott, a West Mifflin resident who has worked 18 years for a Pittsburgh window manufacturer that Thermo-Twin acquired.

Thermo-Twin is one of about 280 companies in Pennsylvania that operate under an employee stock plan for ownership purposes or retirement benefits, according to the National Center for Employee Ownership, a nonprofit based in Arlington, Va. About 60 such companies operate in Allegheny and Westmoreland counties.

Nationwide, about 6,550 ESOPs employ about 10.5 million workers, according to the ESOP Association, a nonprofit based in Washington, D.C.

“It’s an extraordinary program,” said Kevin McPhillips, president of the Pennsylvania Center for Employee Ownership, a Havertown-based nonprofit whose mission includes educating people about how employee stock ownership is structured and its advantages.

Higher wages

In the eyes of McPhillips, it is an advantage for the business to have workers more invested in the company because they can see how their efforts pay off.

And it’s not just when they leave the company through retirement or resignation.

“Wages in an ESOP are as much as 30% higher” than at workplaces not governed by an ESOP, McPhillips said. “We’re trying to address the wealth-gap issue.”

When they walk out of Thermo-Twin’s plant for the last time, employees “cash in” by relinquishing their stock to the company and get paid the value of it, as determined by an independent evaluator, said Dennis Le Van, the company’s executive vice president. Rather than make a contribution to an employee’s retirement account, the company offers stock — a piece of ownership — instead.

Employees have owned Thermo-Twin since 1987, using the tax advantages the government affords an ESOP to purchase the equity of the former owners. The ESOP was converted to a KSOP several years later, Le Van said. The plan had $13.3 million in assets in 2020, according to the National Center for Employee Ownership.

While the stock does not have a price affixed to it by investors or traders on Wall Street, its value is determined by an independent evaluator who determines what would be fair market value if it could be purchased on the New York Stock Exchange.

Building wealth

The ESOP at Chestnut Ridge Foam Co. just outside of Latrobe “gives every employee the opportunity to build wealth,” said George Romanish, vice president of manufacturing and operations for the 125-employee company.

The firm makes fire-resistant and specialty foam products for a variety of applications, including aircraft seats, correctional facilities, college dormitories, and seats on train and municipal transit systems and boats.

Chestnut Ridge Foam has been 100% employee owned since 2012, Romanish said.

Workers get quarterly bonuses based on the company’s profits as well as Christmas bonuses. Chestnut Ridge’s ESOP had $25 million in assets as of 2020, based on data from the National Center for Employee Ownership.

The ESOP also gives those employees contemplating retirement an opportunity to do so “when they otherwise could not,” Romanish said.

Unlike getting the value of their stock in a lump sum as they leave, Romanish said, employees receive a three-year payout under the Chestnut Ridge ESOP.

Worker attitude

“The whole attitude here is markedly different from other window manufacturers (not employee owned). If they don’t make a good product and the product doesn’t sell, that impacts the (company) profit,” which affects their shares of stock and bonuses, Le Van said.

Simply put, “you have a stake in the game,” McPhillips said.

Romanish has a simple but straightforward way of making a point to the workforce.

“If someone is doing nothing, that is stealing from your retirement,” he said.

“When a business does well, employees do well” is more than a trite saying at Penn Line Enterprises Inc., a Scottdale-area company where workers construct power lines, clear rights of way, install guiderails, design and build inside power and data systems, and control erosion. The workers also own a piece of the firm’s success.

“It is everybody’s but nobody’s,” said Penn Line President David Lynn.

Officials talk about a management structure in ESOPs in which workers have a say in a company in a way they normally would not. Thermo-Twin’s Le Van said employee owners complained to the board of directors that a chief executive was not doing a good job. Rather than brushing it off as usual employee complaints, the board listened and a change in top management was made, Le Van said.

At Penn Line, there is not a small group of owners in its ESOP but roughly 1,900 employee owners and retirees through a profit-sharing plan created in 2004, Lynn said. Penn Line used money from a previous profit-sharing plan to buy out the interests of the original four owners who founded the company in 1940 as an operation that managed vegetation along utility lines, primarily at coal mines.

Unlike some employee ownership plans, employees represented by a collective bargaining agreement at Penn Line are not part of the ESOP, Lynn said.

The ESOP fits well into a company philosophy that believes “people are to be valued,” he said.

“Our philosophy,” Lynn said, “is to benefit the employee owners for their long-term future.”

As seen in TribLive and written by Joe Napsha.