Gene Merz, a project superintendent with Sundt Construction, says ownership gives workers a source of pride in the company.

Lindsay A. Miller / Arizona Daily Star

Related articles:

Here's how they work: ESOPs, profit-sharing, cooperatives Big surge is seen in women's businesses

Other articles by Tiana Velez:

Events planner's knack is right touch for occasionCatalina Mart, accidental exec mark opening of 18th stationTwo Tucsonans join in rare business Firm seeks self-motivated people It's simply a great place to work2 women, Marilyn fit car repair nicely$15 wine unpretentious yet fulfilling for architect-turned-wine-sellerTwo find good fit at sewing, repair shopA winding path leads to private practiceMaking Old Tucson Nightfall frightful

Administrative & Professional
Tucson Urban League
CEO/President Trades/Construction
RANCHO RESORT
MAINTANANCE POSITION Finance and Accounting
Charles E. Gillman Company
Accounting Specialist Sales and Marketing
Everready Glass
Sales Reps Mechanical
Komatsu Equipment Co
Resident Field Mechanic Administrative & Professional
Jorgensen Brooks Group
Counselor

A growing number of small and medium-sized businesses are embracing employee ownership as a means of motivating staff members and ensuring the continuity of their companies.

"Employee ownership" refers to the concept of granting ownership of a business to all or almost all of the business' employees, through distribution of company stock.

GLHN Architects & Engineers Inc. of Tucson adopted an employee stock ownership plan, or ESOP, almost five years ago. Today, the ESOP owns 71 percent of the company, representing 50 employees, with the remaining shares in the possession of its three partners.

"The ESOP was the way to go because it had distinct tax advantages, and it allowed a smooth and predictable transition," said Bill Nelson, president of GLHN, 2939 E. Broadway.

Legally established by Congress in the mid-1970s, employee stock ownership plans are now one of the most commonly used forms of employee-ownership in the United States, according to the Washington, D.C.-based National Center for Employee Ownership.

The ESOPs are really a trust that holds stock of the company and from which employees are given accounts. Because the trust is funded by stock or cash from the company — usually its profits — the success of the employee stock ownership plan depends on the success of its employee-owners.

"It's a retirement plan," said Cloriza Lomeli, assistant director of business development at GLHN. "It's something that will show that with the contributions we give to the company, we reap the benefits."

In this way, employee ownership acts as motivational tool for staff — the more productive the company, the more it can contribute to the ESOP and everyone's individual accounts. There are other reasons for it, as well.

"If the goal is, as often the case, to transfer ownership broadly; if you're looking at retiring or diversifying, it (employee ownership) is a very comfortable way for someone to disengage from the business," said Corey Rosen, director of the National Center for Employee Ownership.

Such was the case with Sundt Construction Inc., which since its founding in 1890 in Tucson had been owned almost entirely by members of the Sundt family.

But when company chairman John Sundt died suddenly in 1965, rather than see the company close, the employees made an agreement with Sundt's widow to buy her remaining shares, said Carol Peabody, vice president and treasurer at Sundt, now headquartered in Phoenix.

"By 1984, the ESOP owned 52 percent of the company. By 1998, it had reached 98 percent. In 2000, we completely bought out the last of the shareholders," she said, thus making Sundt Construction entirely owned by its employees — all 1,100 of them.

One of those employee-owners is Gene Merz, 55, who joined the company in 1984 and is now a project superintendent.

"It gives us a lot more pride in the company," he said of the ownership plan.

"We are a part of the company itself. It's not like we're working for someone else who's making all the money."

ESOPs like the ones at GLHN Architects & Engineers and Sundt Construction have remained popular for the tax benefits associated with the plans.

Though there are some restrictions, dividends are exempt from double taxation and some provisions enable shareholders to defer capital gains tax if they sell stocks back to an ESOP.

In 2005 about 11,000 ESOPs existed in the United States, covering about 10 percent of the private-sector workforce, according to The ESOP Association in Washington, D.C.

But they are not the only form of employee ownership. For one reason, the costs associated with setting up an employee stock ownership plan start at about $20,000. Then there's the annual expense of maintenance and having a yearly independent business valuation performed as required by law.

"Really small companies, under 10 or 15 employees might find the plans like ESOPs too daunting," said Rosen with the employee ownership center. Additionally, "industries with very high turnover rates, or businesses that don't have employees who stick around very long are not the best candidates for employee ownership."

Cooperatives are yet another alternative for those businesses that, though small, would like to change to an employee-owned organization.

Credit unions are perhaps the most familiar example of cooperatives, while another model co-op is The Food Conspiracy, 412 N. Fourth Ave.

In addition to employees, residents of the community can also buy a share in the natural foods market regardless of employment status.

"We do generate a profit, but the money goes back into developing the store and it goes to membership discounts," said Food Conspiracy general manager Ben Kuzma.

Regardless of the form it takes, the payoff of employee ownership for some who have chosen it goes beyond tax breaks and the bottom line.

A local social service agency, Community Provider of Enrichment Services Inc., 2020 N. Forbes Blvd, Suite 105, opted for an ESOP in 1994.

"It's a little bit like the difference between buying and renting a home. It goes beyond the profitability issue," said CEO Roger Deshaies. Employees "feel like owners and that gets translated into how they talk about the company and their commitment to it."