Forbes Logo

Improbable Schweitzer Engineering ESOP Story: Growth Company That Stayed Put -- Forbes

Peoria, Ill., without Caterpillar (CAT)? Benton Harbor, Mich., without Whirlpool (WHR)? Columbus, Ind., without Cummins Engine (CMI)?

One of America’s under-appreciated relationships is the one between smaller cities and bigger companies, an often-happy exchange of quality-of-life for the combination of well-paying and skilled jobs, economic growth and stability, and corporate generosity to support cultural and educational institutions.

For every Cummins Engine, approaching its 100th anniversary in 2019 as civic benefactor to Columbus, however, there are scores of middle market and larger companies, based in smaller cities, that have sold to larger competitors and then packed up their factories and left town. The effect is devastating.

That makes the story of Ed Schweitzer, founder of Schweitzer Engineering Laboratories, all the more remarkable. The company, which makes sophisticated equipment for the global electrical power industry, is based in Pullman, Washington, population about 32,000. More than half of that count comes from the students at Washington State University, so Schweitzer’s 2,000 local employees (out of a total worldwide of about 3,800) account for more than one in ten permanent residents, powering the local economy, hiring WSU grads and many others, and supporting local institutions.

Pullman sits about 75 miles south of Spokane, in Eastern Washington, and it’s safe to say that, without the university and Schweitzer, it would be a far smaller and less interesting place to live.

The year 2009, then, was crucial for Pullman. Ed Schweitzer had already sold 49% of the company, beginning in 1994, to workers through an Employee Stock Ownership Plan. Ed was nearing retirement age and selling his remaining and controlling stake was on his mind. Over the years, “I have considered all the possibilities – going public, selling to a strategic buyer,” Ed tells me.

Let’s consider those two possibilities and the fortunes of Pullman for a moment.

To read the article in its entitreity, we encourage you to visit the Forbes site.

How to Build an Employee-Owned Business -- Entrepreneur Magazine

Kim Jordan and Jeff Lebesch wanted to run a more democratic business. Rather than shoulder all the tough decisions themselves, the founders of New Belgium Brewing Company sought their employees’ input early on. This meant cultivating what Jordan calls a “high-involvement culture” of engaged, enthusiastic workers and transparency with staff about all sorts of matters, including company finances.

But employee enthusiasm goes only so far, so in 1996 the pair created a phantom deferred compensation plan, at no cost to the staff of their Fort Collins, Colo.-based craft brewing company. Later, when they started an employee stock ownership plan (ESOP), they honored the original plan until all account-holders’ ESOP balances were larger than their phantom balances.

When Lebesch left New Belgium in 2009, Jordan and the company bought him out, bringing employee-owned shares to 41 percent. After mulling succession plans, Jordan opted for full employee ownership. By early 2013 more than 500 New Belgium employees—Jordan refers to them as “co-workers”—assumed 100 percent ownership of the company. (Shares are awarded based on the recipient’s percentage of the total wage pool.)

The benefits have been plentiful. “We have great retention,” says Jordan, CEO. “Our turnover is under 5 percent.”

To read the article in its entitreity, we encourage you to visit Entrepreneur.com.

How to Build an Employee-Owned Business -- Entrepreneur Magazine

Kim Jordan and Jeff Lebesch wanted to run a more democratic business. Rather than shoulder all the tough decisions themselves, the founders of New Belgium Brewing Company sought their employees’ input early on. This meant cultivating what Jordan calls a “high-involvement culture” of engaged, enthusiastic workers and transparency with staff about all sorts of matters, including company finances.

But employee enthusiasm goes only so far, so in 1996 the pair created a phantom deferred compensation plan, at no cost to the staff of their Fort Collins, Colo.-based craft brewing company. Later, when they started an employee stock ownership plan (ESOP), they honored the original plan until all account-holders’ ESOP balances were larger than their phantom balances.

When Lebesch left New Belgium in 2009, Jordan and the company bought him out, bringing employee-owned shares to 41 percent. After mulling succession plans, Jordan opted for full employee ownership. By early 2013 more than 500 New Belgium employees—Jordan refers to them as “co-workers”—assumed 100 percent ownership of the company. (Shares are awarded based on the recipient’s percentage of the total wage pool.)

The benefits have been plentiful. “We have great retention,” says Jordan, CEO. “Our turnover is under 5 percent.”

To read the article in its entitreity, we encourage you to visit Entrepreneur.com.