A Paradigm Shift with Employee Ownership
Strategic planning and employee ownership led to a more relaxed and engaged workplace.
SE knows what stress feels like. He’s part owner of an engineering consulting firm that does small projects. It means a steady stream of RFPs (Request for Proposals).
“Most of our work is from $10,000 to $15,000 for projects that last six to 10 weeks,” says SE, who is vice president and chief resources officer. “We normally do one proposal a day. By the end of the year, it gets close to 1.7 a day.”
Getting everything just right and submitting on time has occasionally led to all-nighters and missed deadlines. But in the last few years, life at the company has been calmer, more manageable and even more profitable.
The Company was formed in 1998 with three owners. In 2010 when one of the original partners left, SE bought in. Ownership was split three ways, with each principal entitled to 33 ⅓ per cent.
In 2017, SE was the eldest partner in his early 50’s. Words like succession planning and management transition became everyday parlance. The Company began some serious strategic planning.
“We’re all in the same age bracket, and we would all like to get out at the same time,” says SE, whose goal is to retire on December 23, 2026. “I will be closer to 60, and I just want to have as much time to enjoy life, because it can be short.”
The Company hired a strategic planning consultant, who told them flat out, “You guys are getting in your own way.” Management transition depended on up-and-comers being ready to step into the executive role. But The Company had some old-school bad habits. The three principals were doing all the significant work themselves–preparing all the proposals, reports, deliverables and products.
“There are just three of us,” says SE. “We can only do so much.”
SE and his partners listened hard. “We empowered a bunch of staff who had been working for us for a while, gave them more responsibility and delegated a lot.”
SE admits feeling “a little bit of anxiety,” as he stopped preparing proposals and instead became simply a reviewer. “As time progressed, I was seeing fewer changes. They were getting it right. It was a little difficult to let go. But it has worked out well. We’ve gotten out of our way.”
When the three business partners started letting go, the Company became less stressful. SE still had his heart set on December 23, 2026. “There are lots of things I like to do,” he says. But the Company was shifting away from being a top-down workplace, and SE liked what he was seeing.
The Company has always given its 30-some employees the opportunity to grow. It provides a suite of benefits: professional development, individual development plans, training, an RRSP match program and bonuses. Every year before Christmas, the company pays out a percentage of the gross profits.
Delegating the work was a first step. Next came an Employee Share Ownership Plan or ESOP. The Company would sell employees a share of the business. “We thought it would help retain people and make them more accountable,” says SE “And we felt it would help attract new staff with an entrepreneurial spirit.”
The Company contracted ESOP Builders, who recommended forming an ESOP team (a team of employees) to lead the transition to employee ownership.
“The success of ESOP Builders is due to the fact that they emphasize involving your employees,” says SE “They don’t dictate how to involve them but they emphasize getting them involved in some way shape or form. That helped us successfully launch the ESOP.”
The Company’s ESOP team created its own allocation model to determine how many shares each employee could buy. Allocation depends on points. Work experience earns points. Years of service at the company earns points.
Initially, employees needed at least 18 months of service. Since then, the program has broadened and become more available across the company. Employees who have passed their four-to-six month probationary period can buy shares.
The Company launched its ESOP on June 1, 2021. In the first year, it sold 7 per cent of the shares, the next year 8 per cent. The plan is to release 10 per cent every year for four years until employees own 40 per cent.
Every year before June 1, eligible employees receive a letter indicating the number of shares they can purchase. If they choose to buy, they can pay a lump sum, use payroll deduction or ask for an RRSP redirection. The annual payout of gross profits has gone up from 10 to 15 per cent to help employees buy shares.
“Anybody who bought shares in 2021 made a 20 per cent return,” says SE. “We’re seeing similar performance now, so we think we will be doing the same this year.”
Anyone who purchases a minimum of $3,000 in shares is eligible to join a management team. They must submit a one-to-two page Expression of Interest, explaining why they are well suited to the role. The response has been so overwhelming, SE sometimes wonders if the shift at the Company has been too great, too fast.
“We have had to say, ‘OK, how are we actually going to engage all of these people?’
Too many employees want to contribute to running the business. To them, that’s a problem worth having.