At C.W. Brown Inc. in Thornwood, owners Renee M. Brown and Charles W. Brown Jr. have a business succession plan to keep their 24-year-old construction company in familiar hands when they retire.
The married executive team ”“ she serves as company CEO and he as president ”“ this year formed an employee ownership stock plan that gives their 22-person office staff collectively a 10-percent share in the privately held company.
The Browns plan to increase employees”™ piece of the business in coming years by selling additional blocks of stock to an employee trust. The ESOP, as the deferred-compensation benefit plan is called, receives annual tax-deductible contributions from the company, which has $45 million in sales this year.    Â
ESOPs cover an estimated 10 million employees in the United States, or 10 percent of the private-sector workforce, according to The ESOP Association in Washington, D.C. Of the estimated 11,500 ESOPs currently in place, only about 3 percent are in publicly traded companies. Participating employees draw more than 3 percent of their total compensation from ESOP contributions, according to the association.
The ESOP, which replaces the Thornwood company”™s profit-sharing plan and supplements its 401(k) plan, was started both to create a market for stock held by the owners without a sale to outside interests and to attract and retain top employees by sharing in company ownership, Renee Brown said. “We”™re trying to layer ourselves with some young blood so that the company can go on.”
For a company with little employee turnover, “It just seemed like a natural step,” she said. “It”™s to keep people for the long term.” The ESOP should “increase employee incentives and provide them with long-term retirement benefits.”
Eligible employees are vested in the plan at 20 percent yearly. Stock shares are allocated among employees according to length of service. An employee”™s share in the trust is dissolved when the worker dies, retires or ends employment, usually with the trust buying the shareholder”™s stock.
Unlike other employee benefit plans, an ESOP can borrow money and the company can pay back the loan with tax-deductible principal and interest charges. Because the ESOP is a trust, any net income apportioned to the plan is exempt from state and federal income taxes. Any debt incurred by the company to buy shares in an ESOP is fully deductible.
“It”™s still new to us,” said CFO Peter Belmont, who worked with Menken and Associates Inc., a San Francisco-based firm specializing in ESOPs, to set up the plan in July. “Financially for the company it doesn”™t really change anything, as far as I see. It”™s kind of a foreign concept for a lot of our employees. It”™s taken them a while to digest what it really is.”
For Harry Roney, the ESOP was a factor in his decision to leave a New York City construction company last summer to become director of estimating at C.W. Brown. The ESOP already has become the Browns”™ useful recruitment tool when competing with city firms for top-quality employees like Roney. “To do that, we need to have a reason for them to stay,” Brown said.
Aside from compensation and the company”™s proximity to his Pleasantville home, “The other big draw for me was the ESOP program here,” said Roney. “That”™s a big thing for a guy with a family. If I can put in a long career here and I can save with some equity in the firm, that would be great.”
“It”™s a motivator, too,” he said. “It puts a little fuel in your tank. Now I have a truly vested interest in everything I work on.”
Christine V. Fredericks, the construction company”™s accounting manager for 11 years, said the owners always have valued their employees. “Having now the ESOP program, knowing it”™s more of a vested interest in the company, is a good thing all the way through. It”™s a wonderful opportunity for the employees here,” she said Â
The company ESOP includes only office staff. C.W. Brown Inc. also regularly employs about 50 union carpenters.
