October is ESOP month, and we thought it was worth sharing why Harrell Design + Build created an Employee Stock Ownership Plan in 2001 and how being a 100% Employee-Owned company benefits our clients.
What is an ESOP?
In 1974, Congress enacted the Employee Retirement Income Security Act, the first of a series of tax measures designed to encourage employee stock ownership plans (ESOPs).
Today, in approximately 6,500 businesses in the United States, 139 million employees hold most of their company’s stock, effectively making them owners. The most common form of employee ownership in the U.S. is the Employee Stock Ownership Plan (ESOP) – a tax favored non-taxable entity that is specifically designed to buy, hold and distribute value of the employee owned company among their active employees.
In California, there are 1,000 ESOPs and one million employee-owners. You might be surprised to learn that many companies that you are familiar with are Employee-Owned. One of the largest California-based Employee-Owned businesses is San Francisco-based Recology, which became 100% Employee-Owned in 1986.
In addition to tax benefits available to Employee-Owned businesses, employee ownership helps to attract and retain employees, providing them with the potential of building long-term wealth.
ESOP companies also tend to cultivate highly involved work cultures where employees are encouraged to think and act like owners, because they are owners.
Harrell’s Pathway to Employee-Ownership
In 2000, Harrell’s founders, Iris Harrell and Ann Benson, and the company’s management team, decided an ESOP would benefit the company and its employees, and so they set out to arrange and affect a sale of the company to their ESOP for the benefit of the then and future employees. Anthony Mathews, one of the nation’s original ESOP and employee ownership experts, was hired to help the company navigate the process of establishing an ESOP at Harrell. Over time, the Harrell ESOP has distributed significant returns to Harrell employees in their retirement while providing new opportunities for current employees to build their wealth as well. Anthony later took a seat as one of the independent directors at Harrell and he continues to assist with the operation of the ESOP and the development of real wealth for our employees to this date.
ESOPs are not without their complexities. But with both our commitment to make our employee ownership real and powerful, as well as Anthony’s long history of experience on our side, the Harrell ESOP is a model for the community on how much of a difference it can make to have a corporate structure that includes an opportunity for all the employees to become beneficial owners and to make a considerable improvement in their position at retirement.
Anthony says that he may have been instrumental in Harrell’s initial transition from a privately held business to one that was Employee-Owned, but he specifically attributes the real heart of the success that has been generated to the large group of dedicated employee/owners thinking and acting like owners and building a truly wonderful company along the way.
Why Employee Ownership?
Harrell Design + Build launched its ESOP to enable our staff to become owners over time, via contributions from company profits, with no out-of-pocket expenses to the employees.
The value of the ESOP to our Employee-Owners is multi-faceted. A Harvard Business Review article states that ESOP companies are most successful when ownership and programs for worker participation are present. Ownership provides incentive for employees to work productively, and opportunities for involvement enhance productivity by providing channels for workers’ ideas and talents.
“Employee-Owners realize significant financial benefits,” explains Anthony. “They increase employees’ retirement wealth by 400% compared to non-ESOP peer companies.”
In addition to financial gains, being an Employee-Owner is also intrinsically motivating.
Part of Harrell’s Mission Statement cites the goal of “fostering a safe, healthy, stable, challenging and growth-oriented environment for our Employee-Owners.”
Being well informed and included in problem-solving and decision-making prompts Harrell Employee-Owners to feel, act, and respond like owners.
According to Anthony, ESOPs have staying power, which also benefits the company’s clients.
Ciro Giammona assumed the role of CEO in 2014 after helping the company become 100% Employee-Owned. “In ESOP environments, employees have a voice, are encouraged to pursue continuing education, are more engaged, and are paid appropriately,” explains Ciro. “This culture builds commitment over time.”
Compelling research and decades of experience show that Employee-Ownership is a powerful tool to improve corporate performance when companies have high-involvement “ownership cultures” in which well-informed and dynamic employees think and act like owners.
“Ownership is one of our 10 Core Values” explains Ciro. “When employees see the bigger business picture and their role in it, it elevates their understanding. They realize what they do is essential to our success. They begin to think and act like owners.”
In 2019, Harrell Design + Build’s culture of Employee-Ownership earned us the prized designation as one of the Best Companies to Work For in the Bay Area News Group’s Top Workplace Awards, and the California Western States ESOP Association’s ESOP Company of the Year.
When a company is 100% Employee-Owned, employees have a genuine stake in the company’s success and feel more inclined to make day-to-day decisions that drive business forward. Employees take pride in their work because they have a real investment in the company’s success. In essence, ESOPs help make each employee an entrepreneur; they are working for their long-term future and the success of their team. This, in turn, is highly beneficial to the company’s clientele.
How Employee-Ownership Benefits Our Clients
As a result of becoming Employee-Owned, Harrell’s company value has steadily increased. This gain stems from careful management and oversight specifically designed to maximize the benefit to the Employee-Owners. Our strategic growth plan has resulted in greater top-line results, increased production efficiency, reduced overhead costs, elimination of long-term debt, and adequate cash reserves, all of which also benefit our clients by keeping the company a reliable service provider for decades to come.
Employee-Ownership also lends itself to longer tenures, especially in an industry with an average turnover rate of 30% annually. Factoring in recent hires over the past two years due to growth (we have more employees than ever before!), several retirements, and normal turnover, our average employee tenure is 6.5 years. 24% of our team has been with the company for over ten years.
A primary goal continually reiterated in Harrell’s annual Business Plan states: “As a 100% Employee-Owned Company, grow the Employee-Ownership (ESOP) culture with a focus on developing leadership and entrepreneurship skills, technical skills, personal development and accountability at all levels within the company.”
Harrell underscores this goal via our Employee-Ownership motto of “See It, Own It, Solve It, Do It,” borrowed from the book “The Oz Principle“ by Craig Hickman, Roger Connors, and Tom Smith.
At Harrell Design + Build, we believe that when Employee-Owners are empowered, their “self-accountability” increases, resulting in higher levels of individual and collective performance.
We encourage everyone to act like an owner, and every Employee-Owner is tasked with and dedicated to our team’s success. Integral to Harrell’s success is providing an exemplary experience to each of our clients. On an Employee-Owner level, this translates to being empowered to identify and resolve problems, innovate, perform their best work, collaborate creatively, and communicate effectively.
As a prospective client commented, “Wow! Everyone is an owner? That means everyone cares.”
Woman Founded and 100% Employee-Owned, Harrell Design + Build has created distinctive homes in Silicon Valley and on the mid-Peninsula since 1985.