Find news and information for the executive corporate security director, CSO, facility manager and assets protection manager on issues of policy, products, incidents, risk management, threat assessments and preparedness.
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34 Security Dealer & Integrator / www.SecurityInfoWatch.com October 2016 Employee Buy-in Hoertsch says it was not difficult to get buy-in from the employees. "Once the deal is done and the employees are educated on what an ESOP is, the buy-in is immediate," he says. "A key that ensures employee enthusiasm is the fact that they are able to acquire company stock without paying a cur- rent income tax on the stock," he adds. Employees are not taxed when the stock is acquired. Tax is levied upon stock redemption, which occurs in a timed sequence aer the employee leaves the company through retire- ment, death or other manners of exit — similar to a traditional 401(K) plan. "One thing that is oen missed is that the ESOP really is a retirement program that can create tremendous wealth, and the employee owner makes no contribution," Clark says. "Stock ownership is not the important part — the stock value as a vehicle to establish a contribution to a retirement account is the important part." "While ESOPs can be effective suc- cession vehicles, they are not one-size- fits-all solutions," Pritchard warns. "One misstep could be costly and diminish the effect of its benefits." As a brand new ESOP, Pro-Tec wanted to be 100-percent employ- ee-owned from the start. "Our chal- lenge for the next two years is to keep the employee engagement visible during the period immediately follow- ing the announcement and channel it to continuously improve our ser- Long-time owner of Pro-Tec Design Tom Hagen transferred ownership of his company to the employees — led by Eva Mach — in February of this year. Eva Mach took over as President, CEO and employee owner at Pro-Tec Design this February. Cover Story Robert Hoertsch, President and CEO of Low Voltage Contractors, has seen the company's growth accelerate since employee ownership took effect in 2008. vice delivery and overall profitability," Mach says. She expects it will take a couple of years of shareholder reports to estab- lish the economic value of being an individual employee owner. "In the meantime, we need to build the culture of employee ownership throughout our company," Mach says. Meanwhile, look for more ESOPs in the small business arena — many, many more. In fact, baby boom- er-owned businesses may become a glut on the market. Pritchard says ESOPs are worth considering in the face of an increased supply of closely held businesses which may flood the market, outpacing demand and poten- tially causing depressed purchase prices and longer timelines for sales. at is similar to what happened at LVC. In 2008, the majority stockholder of LVC decided that he wanted an exit strategy. "An open market sale of the company was disregarded, because the owner felt that this type of sale would have an adverse effect on the employ- ees — specifically the fear that some employees would lose their jobs due to redundant positions with the pur- chasing company," Hoertsch says. "An ESOP allowed an orderly exit strategy and also rewarded the employees for their years of service." As an added benefit, it also allows an owner to retain control until that person is actually ready to retire — at which time the control of the company is turned over to the key employees. Pitfalls and Advice e move to an ESOP can create serious cash flow issues and have an adverse effect on the business's debt- to-equity ratio, Hoertsch warns. "Do your homework," Hoertsch advises. "An ESOP is not right for everyone.