Employee Owned Business

Milhaus

I recently read an article about an employee owned construction business. Anyone have any info on this? It sounds interesting and seems like it would give employees a different perpective on their work and the daily grind of working for someone else. I'm all for making sure employees are well taken care of, this seems like a win win for both the business and the employee.

Mark

vinylguy

mark,
employeed owned company ! i'll bet it wouldn't change much except you getting less profits. just a thought but i know employees, they will still have the excusses but still want there share of the profits. i could be wrong about this but its just my gut feeling

joasis

I agree...there is something different about "ownership" and just being an employee....but most employees would love to make the bucks like they own it, just pass on the responsibility.

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BrianHay

My brother and his wife own a very successful insulating business. They had a hard time with finding dedicated employees to work hard for industry standard wages so they considered different employee owned type options to motivate them. What they ended up doing is having all subs instead of employees. Him and his guys went to his accountant and he got them all set up properly and pays them piecework now. The end result is 10 fold better then they had hoped for. Now instead of having troubles motivating they motivate each other. He has 18 year old kids ASKING him if they can work longer hours/weekends. They motivate/govern each other better, if one starts slacking off the rest get on him. They have voluntarily taken on more responsibility because they have a more vested interest in the job. No one gets paid until the job passes his inspection so the quality of work that he takes so much pride in has not suffered as a result of his crew wanting to get done faster.
His profits have not suffered as a result of paying the guys more ether because his guys are more productive and he can take on more work.

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Much happier playing in the dirt than I am on the computer.

joasis

That is where I am going with my current crew....but they own their own business, not the concept I think behind a group of employees owning the company.

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backhoe1

We had a roofing co. here that tried something similar, I guess it worked until the employees figured out that with all of them together they held a majority interest. They took it over from the original owner (20+ years) and were broke in less than a year lol...

Susan Betz

Yeah, I'd never give up that controlling interest.

But, you could give shares as incentive. I don't think most employees would care unless there are shareholder earnings. It's not like most of us trade on the NYSE. Shares in a small company are practically worthless on paper.

I can see how it could work, with the right crew. But if you have the right crew, why not just pay the snot out of them and be done with it?

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Fences of Distinction, Ocala, FL
http://www.fencesofdistinction.com

Grumpy

If they want in, let them buy in. If you really want to go employee owned offer your senior most "key" personell a percentage of the stock of your corporation. You'd be the chairman of the board and they would be board members. You'd all still keep your regular daily duties but you'd have added steps to the decision making process for major decisions.

Make sure if doing this, that these key people share your vision of where you want the company to go. Now hire an accountant and lawyer to work out the details.

I am an employee of the company I own, that makes it employee owned in my book

silvertree

Employee owned is a tough plan. I have read of it working and working well. But I wonder; for products you could pull it off, but for remodeling I don't see it working without an owner. Getting everyone to act for the greater good and still have an equal say doesn't work out in my head. You need one vision.

Grumpy

Does it really work that way? I didn't think it'd work that way, I don't think everyone is an owner, and I don't think each owner is equal... though I am sure each entity is structured differntly. LOL however if EVERYONE is an owner your worker's comp rates would be much much much lower!

fathersonfab

When I think of "employee owned" I think more like Profit Sharing, or bonus incentives. I don't think an employee would much care about being an owner. If they did they would have started their own business by now. Also, giving ownership in a business will not automatically make him more responsible about the business. He could easily end up being a higher paid slacker too.

I like what Brian said about making them all subs, or what is referred to here in California as independent contractor or freelancers, or what the IRS refers to as a 1080i employee. Although it may be different in Canada than in the States. (by the way Brian, that Spyder Hoe is wicked looking!)

It can be a very tricky thing so you should check with your tax advisor. Alot of companies use freelance people to get out of paying workers comp. But there is a very strict set of rules the IRS uses to determine if they are truly freelance. If a freelancer ONLY works for you and no other outside company, then technically he's your employee and not freelance.

here is the link to the IRS website, Employee vs. Independent contractor.
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I have been wondering about this question myself. How to get labor at a cheap base wage, but pay them high dollar bonus incentives so that when I make money, they make money. If I loose money because they are stupid or sloppy, they also feel the affect of their stupidity and laziness.

I have no problem paying someone well for a job well done. but where do you find those people and how do you get them to take on the responsibility?

Mike Finley

Employee owned doesn't have to mean Joe your lead contractor owns 80% of your company. It can mean Bill the owner of Bill's Remodeling ownes 80% of the company and Bill's 13 employees own a combined 20%.

That being the case you've got employee ownership and a vested interest in the company, it's profitability and it's longevity, but you don't have Joe the lead saying I'm going to change the way we do business and from now on we are only going to bid on strip clubs.

Individual employee ownership as I understand it can be sold to employees as a lump sum, a monthly amount taken out of their paychecks, a year end buy in based on seniority or anything you want.

Milhaus

In the minimal research I've done on it, it seems like it is the ideal - all the way around, which in most cases doesn't lend the best results. You'd have to have GREAT employees, you would have to consistently be monitoring all aspects of your employees, the work they do, and the end results to make sure that everyone is on the same page, and you'd have to have it set up properly with the accountant to make sure that the tides would never change for the worst. I think the risks far outweigh the benefits for this situation. But from the article I read, the rewards are just as great if you could make it run. The biggest factor being the people you hire. They have a vested interest in the company, and their work should emulate that interest. I think the average employment for this company was 12 years. That's impressive. And the work that they produced, in this situation, WAS for the benefit of the company and did follow suit with the vision that the original owner had. He just allowed them the freedom to expand their personal ideas for the benefit of the company. That would be the hardest part. Letting go of control and allowing each employee to bring something to the table. The article is in Remodeling magazine. It's a good read if you have the time.

silvertree

Great topic, and after all the posts I understand this concept better. Grumpy, your right, it would not be equal ownership and most likely an owner would give up less than 50%. I ran my company well in the beginning and took on a partner when my wife was pregnant with our second child. At first it was 60/40, then it was 51/49, and then it went 50/50. I was an idiot for doing that. I now own it all, but it cost me. Things are going well now, but I learned a lesson about giving up control. 80/20 and 20% being the employees is doable, but if I was approached about this now I would pay well as opposed to ownership. But doctors, lawyers and accountants do this all the time. But the nurses and paralegals aren't included.

Giovanni

One way of creating an employee owned company AND cashing out the owner (you) of a closely held business is to setup an ESOP (Employee Stock Ownership Plan). This is an employee benefit plan where a trust is created to buy the shares from the owner with money either contributed by the employees or borrowed. In effect as the owner you can exchange your equity for cash while the new owners provide money or debt in exchange for ownership in the company.

ESOPs aren't quick and easy to set up but there was a study I read about that said ESOP companies tend to pay better and do better than comparable non-ESOP companies. There are also tax benefits for the company and the owner too.

www.nceo.org/library/esops.html
en.wikipedia.org/wiki/Employee-owned_corporation

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What's the REAL cost of doing it on the cheap?

Giovanni

BrianHay

It's working really well for them and when it comes time for us to hire operators we will probably consider doing the same thing. It has to be done with an accountant to be sure that it is all done right though. In Canada not just anyone can be paid as a sub. The roll the person plays within the company has to meet certain criteria to be able to be classified as a sub instead of an employee.

I'm really looking forward to posting some pictures of our hoe in action

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Much happier playing in the dirt than I am on the computer.

ED_Painting

I don't think everybody could be an owner, they all want it though. There are a lot of guys that know their work but can't run a business.

JumboJack

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in texas with framing and cornish people will do it for 3.00 a foot. What do yall think about that? Just laber

Darwin

GAK

A book I highly recommend is The Great Game of Business by Jack Stack.
He also wrote A Stake in the Outcome. Both are inspiring reads.

It deals with this very subject and is his story about how he made it work.
It still works today. I have often thought that it is the way to go but have not done the work required to put it in place.
You can pick this book up on e-bay for a few dollars.