All Employees are Also Owners at Luckett & Farley
At Luckett & Farley, a local architectural/engineering/interior design firm, the minute you become an employee, you also become an owner.
That’s because the firm is 100% employee-owned. Called an Employee Stock Ownership Plan (or ESOP), everyone who works at the company is part owner. In fact, that’s what “employees” there are called: “employee-owners.”
How an ESOP is created
Typically, ESOPs are created when the owners of established companies get to retirement. Instead of finding an outside buyer, they set up a trust that purchases shares of the company stock. Shares in the trust are then allocated to individual employee accounts.
“ESOPs transfer ownership to employees so they themselves can derive greater value from the hard work they do to make the company successful,” says Jarred Cook, vice president of finance at Luckett & Farley. “We see this as a wealth building tool for our employee-owners.”
According to the National Center for Employee Ownership, as of 2015 there were nearly 7,000 ESOPs with $1.23 trillion in assets.
“They aren’t all that common, but they are growing in momentum, especially in terms of succession planning,” says Cook.
Cook, who also serves on the advisory board of the ESOP Association’s Ohio/Kentucky chapter, speaks at regional events to help educate business leaders about ESOPs. He’s even dialogued with local leaders about how ESOPs benefit employees.
“We actually participate in a quarterly ESOP roundtable held locally too,” he says.
Security and stability: benefits of an ESOP
Klaus Schlimm, a marketing content coordinator at the firm, began researching employee-owned companies after becoming a father. “You start thinking a lot more about the future, about retirement.”
“The more I read about the benefits of working at an employee-owned firm, I was sold,” says Schlimm. “All the other generous benefits were just a bonus. It’s a big sigh of relief for me and my family.”
And that’s just the kind of opportunity Luckett & Farley CEO Ed Jerdonek envisions creating for employee-owners.
“We want to be the kind of place where moms and dads can send their kids to the college of their choice, where they can pay for private schooling if that’s what they wish,” he says. “These are securities that come with a strong financial position.”
Cate Ward, a new architect at the firm, said the ESOP was a big selling point.
“As a recession-age employee who’s experienced what it feels like at firms when things get lean, it was impressive to me,” she says. “I was looking for a larger firm that had more security, more stability.
“It proved to me they must be successful. If they made that leap, they must have enough profit to share.”
It takes a certain kind of leader
According to Cook, leadership at ESOP companies tends to put an emphasis on their people, even at the expense of their own profits.
“You’re dispersing earnings a lot more equally,” says Cook. “It takes leaders who can recognize that — were it not for the efforts of people at all levels of the organization — the company would not be what it is.
“You can tell it’s worth more to them for people to prosper and create wealth for their families.”
By the numbers
The company typically returns between 10 and 15 percent to the ESOP each year. This is on top of annual cash bonuses based on firm profitability and the company’s generous 401K match (25% of the first 5% deferred).
“In 2014, between the ESOP and cash bonuses, we returned $3 million back to our employee-owners,” says Jerdonek. “You tell me any other business doing that.”
“If the culture isn’t right, it can be detrimental to an ESOP,” says Cook.
Employee-owners agree that part-ownership affects how they approach their work — and each other.
“You’re working for yourself, essentially. And your co-workers and their families,” says Schlimm. “Not a board or small group of shareholders that you’ll never see. It creates this camaraderie, cohesiveness.
“Plus, the harder you work, the more benefit you see,” he says.
It’s a sentiment echoed by Ward. “People here are more laid back. Just generally nicer, calmer, less competitive.”
Ward says the amount of transparency is another aspect of ownership she didn’t expect.
“You have a vested interest — a stake in how profitable things are,” she says. “At whole-firm meetings, they tell you everything. It’s reassuring that they trust you with that information.”
Cook said, “When making decisions from the perspective of an owner, you look more carefully at how you spend funds because you know every dollar we spend impacts the stock value of the company.”
Susan Pittman, the firm’s vice president of talent and organization development agrees it’s a different mindset.
“Even things as simple as leaving the lights on in the building,” she says. “People say, ‘Wait a minute, that’s my retirement money.’”