Rich and Pete founded a construction site preparation contractor in 1990, growing it from a small company with a handful of contracts to a multi-million dollar operation. They maintained ownership for nearly three decades and worked hard to grow the business. Rich focused on finance and HR while Pete led all work in the field.
Rich and Pete had several options when they decided to sell their business. In most transactions, the sellers try to get top dollar. They've often spent decades in the business and are ceding control to someone else, so they want as much money as possible to buy a boat and a beachfront house.
While many variables determine the total payout to sellers, the headline price is the one most talked about at the country club. Here's how the negotiation went for Rich and Pete's business (pay close attention to the numbers):
- Rich and Pete's first offer: $6.3 million
- Buyers' counteroffer: $6.1 million
- Rich and Pete's counteroffer: $5.9 million
- Closing price: $5.9 million
You read that right -- Rich and Pete offered a lower price than the buyers' counteroffer to sell their business.
Why would they want to sell their business, into which they poured blood, sweat, and tears for nearly 30 years, for less money? Because they sold the company to their employees through an Employee Stock Ownership Plan, or ESOP. When asked why they countered with a lower number, Rich responded, "Our employees made this company what it is, and we want to take care of them. Making them pay more won't help."
I may dive more deeply into employee ownership over time, but suffice it to say it's one of the few mutual wins in business. In my time working with ESOPs, I have countless stories of higher employee satisfaction scores, turnover rates halving then halving again, shifts to a company-wide ownership mentality where employees hold one another accountable, and because ESOPs are a retirement plan, low-paid workers retiring with millions.
There are also stories of employees from marginalized populations getting equity that they would otherwise never have the opportunity to get.
By any objective measure, America has never been more politically divided (see this chart from Pew Research for a graph of what we all know). One area of bipartisan agreement is employee ownership. Liberals support employee ownership because of its fairness -- everyone from the CEO to the lowest paid employee gets equity. Conservatives support it because it helps small businesses compete and spreads wealth without redistribution or taxes.
When you have an issue that both Rage Against the Machine and the Koch Brothers (probably?) agree on, you're onto something. ESOPs are a powerful tool in addressing this country's wealth gap and income inequality issues.
So next time you need beer, consider a pack of Great Lakes Brewing (their porter is killer). Shop at Publix. Get your granola from Bob's Red Mill and your flour from King Arthur Flour. If you need trees trimmed, call Davey Tree Experts. They are all employee-owned companies and are committed to supporting employees and their families through shared ownership.
And who knows, if they're anything like Rich and Pete's employees, maybe your Publix cashier was lucky enough to buy the business at a discount. Then buy herself a boat.