While Lift, Inc. is celebrating its 50th year of business in Central Pennsylvania, in terms of ESOP (Employee Stock Ownership Plan), the company is considered relatively new.
“We’re in the early, early stage,” said Lift CFO George Hennessy, whose company instituted employee ownership in October 2019. “So far, we’ve seen a lot of the benefits we hoped to see but probably not all of them.
“Very early on, employees want to know, ‘What’s in it for me and when do I get this big windfall?’ It takes time to build shared value and the number of years in your account. After three, four years of getting statements, we’re starting to have material balances in people’s accounts and now you can feel a little more engagement.”
Kevin McPhillips, executive director of the Pennsylvania Center of Employee Ownership, said Lift’s situation is common among ESOPs.
“When ESOPs are first formed typically there’s a vesting period for employees for the first year or two,” said McPhillips. “There’s an adage about ESOPs – a third of the people get it right away, they understand how great this is going to be for them and their families; a third of the people have a wait and see attitude; and a third of the people are absolutely certain this is some kind of a scam.
“After about two years they see this money accumulating in their accounts. As George said, what he sees is a culture change where people are thinking not only about their jobs but about their co-workers as well and how the success of the company can make a difference for them.”
McPhillips said it’s common for people to call him and say, “Hey, we’ve had this ESOP for six months and people just don’t get it.” His response is to tell them to wait until Year Two or Year Three. Inevitably, he said, everybody starts to understand what an ESOP is about.
“It creates a sense of, ‘We’re in this together and we want to make this company better,’” said McPhillips.
An advantage of ESOP is that they create a structure for financial strategy toward employee stock ownership and an alignment between the financial goals of the employee and employer.
In 2016, the number of ESOP companies in Pennsylvania ranked roughly in the middle of U.S. states. By 2021, however, Pennsylvania was second in the nation behind California in the number of ESOP companies.
“Every (ESOP) plan is different,” Hennessy said. “In our plan, you must work a thousand hours in a 12-month period (to be eligible).”
As a point of reference, a person working a 40-hour week for 52 weeks, works over 2,000 hours. In Lift’s ESOP plan, one would need to work at least six months of a 12-month period. An employee can then enter the plan on Oct. 1 or April 1, depending on when they reach the minimum 1,000 hours worked.
Hennessy said Lift has a vesting schedule which sees its employees fully vested after six years.
At the time of it becoming an ESOP nearly four years ago, Lift had between 275 and 300 employees, according to Hennessy. He recalled the company having immediate buy in from 25% of its employees, skepticism from 25%, apathy from 25%, and the final 25% wanting to know more.
Of the 430 employees Lift currently has, Hennessy said 275 are eligible.
“As we become a more mature ESOP, we’re hoping that number grows, the shared values continue to grow, and therefore the impact continues to grow,” he said. “You want to treat them as shareholders, and you want them to act and feel like owners.”
Hennessy was first introduced to ESOP by a company in Lancaster that had transitioned to employee ownership.
“They took us through the process,” he said.
Hennessy added that ESOP is one thing the federal government believes in, regardless of political leanings.
“The right side may like it because the owners get liquidity, and the left side likes it because the employees get ownership,” Hennessy said. “(ESOPs) give us the ability to not pay federal and state income taxes at the corporate level. You reinvest that additional cash flow into the company and it’s good for everybody.
“When I’m at a party and I say, ‘We’re doing an ESOP and we don’t pay taxes anymore,’ they’re like ‘What?! Can you tell me more about that?’
“Go to anybody in any business and ask what’s their Number One problem and they’ll say ‘Labor, finding labor, keeping labor.’ ESOPs are a great way to attract and retain people.”
McPhillips said the reason there aren’t more employee-owned businesses is because people don’t know about them. He acknowledges that employee ownership is not for everybody for a variety of reasons, but said once people know about ESOPs, there’s a subset of businesses that love the idea.
“One of the great stories is what happens to ESOP companies after just a few years,” said McPhillips. “The more we raise awareness, if we can get people to know the term ‘employee ownership’, I think there’s a tipping point where businesses are going to be looking for this.”
There’s legislation on the national and state level supporting employee ownership. The WORK (Worker Ownership, Readiness, and Knowledge) Act was introduced by Sen. Bernie Sanders, I-Vermont, in 2009 and passed in 2022. The bill helps workers expand employee ownership across the U.S. by providing funding for businesses that are seeking to consider or convert to ESOP.
In Pennsylvania, House Bill 2888 is aimed at establishing the Office of Employee Ownership within the Department of Community and Economic Development; establishing the Main Street Employee Ownership Grant Program; and providing technical and financial assistance to employee-owned enterprises.
“We have to find other ways to provide for people in retirement,” McPhillips said. “If we don’t do that, who’s going to pay the bill?”
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