When the U.S. economy tanked in 2008, many of the nation’s electrical contractors found themselves forced to slash budgets, cut staff to a bare minimum, or close their doors altogether. As the Great Recession slowly loosens its stranglehold on American businesses, St. Louis-based Guarantee Electrical Co., a 109-year-old electrical contractor with operations in Denver and Granite City, Ill., is confirming that its 2005 decision to institute an Employee Ownership Transfer Plan (EOTP) not only helped buoy the company during the recent economic nosedive, but also continues to achieve greater-than-expected dividends, such as attracting and retaining top-quality employees and clients. In addition, Guarantee is hoping to secure new merger partners from across the United States by using the prospect of employee ownership as the primary lure.
Guarantee’s EOTP consists of two components — a Key Management Stock Purchase Program (KMSPP) and an Employee Stock Ownership Plan (ESOP). For the KMSPP, the company’s executive management team (EMT) recommends participants to its board of directors. In turn, the board approves all stock purchases. On the ESOP side, every non-bargaining employee with a minimum of one year of service, working at least 1,000 hr annually, qualifies for inclusion in the plan. Stock is purchased using company contributions and distributed pro rata based on salary to all participating employees. Over the first five years, participating employees have received new stock or cash in their accounts equal to an average of 9.5% of salary and an overall average appreciation of 30% per year excluding annual contributions.
“This is all internally funded based on the performance of the company,” explains Rick Oertli, Guarantee’s CEO. “So in other words, the profits drive the pace at which the ownership has transferred and grown. We’re now in our sixth year and about 90% complete without any leverage applied.”
Currently, 22.3% of Guarantee stock is owned in the ESOP, while a group of 14 key executives and managers holds 62.9% in the KMSPP. Retired and non-working legacy family shareholders of the once 100% family-owned company hold the remaining 14.8%. The ultimate steady state goal is for the ESOP to hold 25% to 35% of the company’s shares, with key executives and managers owning the remaining 65% to 75%.
“The collective sense of pride and ownership that is generated by the program has been a real benefit to both the employees and the company, especially during these difficult economic times,” says Oertli. “The EOTP creates a ‘we’re all in this together’ mentality. People understand better what the balance sheet is and how to protect it as we continue to navigate a very difficult marketplace.”