Adopting an employee ownership plan requires education, expertise 

Within the last month, three Central Pennsylvania companies announced that they had or would be buying back part or all of their stock to give to their employees as part of new Employee Stock Ownership Plans, known as ESOPs. 

The announcement that your company is adopting an ESOP can be an exciting one. It means the potential of retiring with a drastic boost to your retirement fund after selling your stock back to the company. 

For an employer, it means securing a business succession plan, giving employees a sense of ownership and more. However, while a company can have a long list of reasons for adopting an ESOP, maintaining the plan and educating employees about ownership brings its own challenges. 

The initial decision 

Providence Engineering, a Lancaster-based engineering firm with 75 employees, announced in November that it would be going to employee ownership. For Providence leadership, an ESOP plan was one of three options on the table when discussing what the next phase of transition would look like for the firm. Providence could look for potential buyers outside of the company, look internally to be purchased by someone within the company, or it could take out a loan and give its stock to its employees. 

“At a point after really digging into the options, it became clear that for Providence, the best option was to ESOP the company,” said David Bernhardt, president of Providence Engineering. “It allows Providence to remain Providence. We didn’t get bought or sold, the brand remains and the culture remains.” 

As a professional services firm without many saleable, tangible assets, going ESOP spoke to Providence because it supplied an avenue to transition the company without having to bet on finding an interested buyer, said Bernhardt. 

“We don’t have a warehouse full of goods, a yard full of equipment or contracts that annually renew to help establish a sales price,” he said. “A professional service firm is built on good will– The good will of our team to help provide our service and the good will of our clients to provide us with opportunities to provide that service.  The value of that good will is only worth what someone is willing to pay.” 

ESOPs have been around since the 1950’s but began to see more use after the Employee Retirement Security Act of 1974 (ERISA). The law introduced an incentive for ESOP creation in the form of tax exemptions, which help a company with the funds needed to make contributions back into the company stock. 

“The federal government, Pennsylvania and most states stood up and said that if you adopt an ESOP, you don’t have to pay taxes on the part owned by employees,” said Kevin McPhillips, executive director and CEO of the Pennsylvania Center for Employee Ownership. “You get all of this extra cash to build the business.” 

In forming an ESOP, a company must have the capital on hand to buy whatever percentage of the company it is looking to give to its employees. Generally, a loan is needed to tackle that upfront cost, which affects the initial value of the stock now owned by the employees. 

The stock becomes a retirement benefit in line with something like 401-k. Employee owners can then watch their stock mature over the years and sell it back to the company when they leave. The stock maturates as the company increases in value, which can be found through an external ESOP trustee who works with a valuation firm to value the stock annually. 

Educating new employee owners 

The champaign has been poured and the company has celebrated the adoption of their new ESOP.  

That initial announcement may not convince every employee of the latent benefit they would receive upon retirement. If they check the worth of their stock in those early days, they may be surprised to see that their stock is worth hundreds- not thousands of dollars. 

“It’s not uncommon for an ESOP that the company took on all of this debt and that debt drives down the value of the stock,” said Trevor Bare, a partner and consulting actuary with employee benefit and investment advisory firm, Conrad Siegel. “There is this disconnect where we have this valuable, big company but they don’t see that reflected in the stock because most of the shares are held because of the outstanding debt.” 

Bob Whalen, CEO of Harrisburg-based HB McClure, helped lead the charge for the company’s transition into an ESOP in 2010. Since transitioning into an ESOP, the commercial, residential plumbing and HVAC services company has also transitioned the employees of the companies it has acquired, which Whalen said has made the company a more attractive buyer. 

Despite HB McClure’s 23 transactions, educating employees on the benefits of an ESOP has not gotten any easier, said Whalen. 

According to McPhillips, one third of employees understand the function of an ESOP and are excited by the concept, another third has a wait and see attitude and the final third believe the entire thing is a scam. 

“Educating the employees is a challenge. We would like to think that we can tell them that they are an owner of the firm, you snap your fingers, and their behavior aligns with how you want it to,” said Whalen. “The reality is, just like any other adoption curve, that happens over time. People want to see results before they are willing to buy into it.” 

In the new year, Providence will be introducing an ESOP committee, comprised of both Providence leadership and staff to allow the firm’s employees to learn about the ESOP process and explain it to their peers, rather than allow communication to come just from leadership. 

“It’s important. The message is received better from your coworkers and friends,” said Bernhardt. 

A national outlook for ESOPs 

The most recent data available from the National Center for Employee Ownership states that there were 6,501 ESOPs operating across the country in 2018 with total assets over $1.4 trillion. In Pennsylvania, that number was 252 ESOPs with assets over $8.3 billion. 

McPhillips anticipates that Pennsylvania may have become the state with the most ESOPs in 2020, but that data won’t be available for some time. “We are hearing from the business community that activity is brisk in Pennsylvania,” he said. 

The data also shows that the number of ESOPs nationally have continued to decline, dropping from a recent high of 6,717 in 2014. That is due to the double-edged sword that is an ESOP, said McPhillips. 

“Many times, these businesses are extremely valuable,” he said. “The company does very well, and you get offers for the business. Once the business is more than 50% employee owned, the trust has the authority to assign the Board of Directors. I’ve never seen them change the board, but they have the authority, and the trustee must make a decision of what is best for the employees.” 

Cashing out 

Even when forming an employee ownership plan, a company should take into consideration what it will look like when employees are ready to sell stock back to the company and receive payments from the company, which can take time to completely pay out. 

Conrad Siegel does not work with new companies looking to adopt an ESOP, but it does bring on ESOP clients and help with the ongoing administration of the plan. 

Securing a loan, planning out the initial ESOP strategy, and announcing the plan to employees is a months-long process but maintaining an ESOP lasts decades. 

“We help companies communicate this to employees, we manage it so its sustainable for the long term, we make sure everything is in balance so that the cash paid to former employees is matched by active employees,” said Bare. “We are not there are the start line, but we are there for the rest of the race.” 

McPhillips seconded Bare, noting that companies should look to other companies when deciding on going ESOP and work with organizations specialized in employee ownership. 

“If you are a real estate lawyer and you are trying to help with an ESOP, you are going to be costly and it’s going to be flabbergasting to you,” he said. “You need to work with experienced people.” 

RETTEW CEO Lauriello to relinquish leadership role next year, but remain as CEO emeritus 

Mark Lauriello, current Chairman of the Board and CEO of RETTEW (left) and Clayton Bubeck, president of RETTEW (right). PHOTO/PROVIDED.

RETTEW’s CEO and Chairman of the Board plans to step down from his role effective February 4, but will remain with the company in a part-time capacity. 

The Lancaster-based engineering consulting firm said Monday that Mark Lauriello will continue as CEO Emeritus with current president Clayton Bubeck taking on the role of CEO and president. 

Lauriello has worked at RETTEW for more than 32 years in various roles including president, vice president and service area director.  

Bubeck has led RETTEW as president since 2019 as part of Lauriello’s transition away from leading the company. 

“Clayton’s leadership, client relationships and proven performance at RETTEW undoubtably make him the right choice to succeed me as CEO,” Lauriello said. “The company’s future is bright, and I have full confidence our leadership team, under Clayton’s helm, will take this company to new heights.” 

Bubeck has worked for the company for 12 years. He started his career in RETTEW’s regional offices in Schuylkill County before leading the company’s entry into the oil and gas market.  

As vice president of the firm’s energy division, he helped evolve RETTEW from a mid-Atlantic-based firm to one competing on a national level. Bubeck also played a vital role in transitioning the company to an employee-owned entity in 2018. 

“I am deeply honored to have the opportunity to succeed Mark,” Bubeck said. “He has put a strong foundation in place, has been an amazing mentor and coach to so many of us at RETTEW, and I look forward to leading RETTEW to the next phase of our journey.” 

Lancaster’s Providence Engineering approves ESOP, turns future over to employees 

Providence Engineering, a Lancaster-based engineering firm of 75 employees, is now employee-owned after adopting an Employee Stock Ownership Plan (ESOP) last month. 

The firm announced to its employees in October that it took out a loan to buy Providence’s shares from its previous owners and shareholders and divided those shares among the 75 team members. 

Providence was founded in 1992. Today the firm has expanded to seven offices throughout Pennsylvania. 

For a business-like Providence, operating under an ESOP provides an alternative business succession plan, one that will work perpetually now that it is in place. 

“The ESOP allows Providence to remain Providence,” said David Bernhardt, president of Providence Engineering. 

Bernhardt has no immediate plans of retiring but wanted to transition the company to an ESOP as early as possible to avoid the long challenge of transitioning that he has seen other companies go through, the company wrote in a press release on Monday. 

 “I didn’t want to wake up years from now and have this panic about what was going to happen with the company,” he said. 

Providence joins a growing list of Pennsylvania businesses shifting to employee ownership including Sheetz, Urban Engineers, RETTEW and more. Most recently, Lancaster-based Rhoads Energy announced that it created its own ESOP to give ownership to each of its 160 employees. 

PennDOT accepting proposals for unsolicited public-private partnerships 

Privately owned businesses have until the end of the month to submit unsolicited proposals to the Pennsylvania Department of Transportation (PennDOT) Office of Public-Private Partnerships (P3).

PennDOT announced on Thursday that it is accepting proposals from the private sector on innovative ways to deliver transportation projects across roads, bridges, rail, aviation and ports.

The P3 office holds these proposal periods every April and October. The state’s P3 law allows PennDOT and other transportation authorities and commissions to partner with private companies to participate in delivering, maintaining, and financing transportation-related projects.

Businesses use the period to propose work on projects and infrastructure owned by the department. PennDOT’s Public Private Transportation Partnership Board can enter into a contract with the entity if the proposal would be most cost-effectively administered by a private company, according to a press release from PennDOT.

Businesses can also submit applications on more efficient models to manage existing transportation related services and programs as well as projects associated with non-PennDOT-owned assets.

The proposal period ends Oct. 31 and the next unsolicited proposal acceptance period will be held next April.

Instructions on how to submit a project and information on the unsolicited proposal review process can be found on the state’s P3 website.

Harrisburg engineering firm acquires Polish surveying technology company 

Sustainable environments engineering company Dawood has acquired Poland-based surveying technology company ArchiTube.

The acquisition brings ArchiTube’s laser scanning, land surveying and facilities management to the Harrisburg-based engineering and technology firm.

Dawood operates throughout the United States, Europe and Asia, providing civil engineering, surveying, mapping and permitting and design. The company has brought ArchiTube on as a subsidiary along with leader Adam Grewenda.

“Adam’s leadership and ArchiTube’s diverse client portfolio adds tremendous value to our family of companies—increasing our geographic reach 10-fold throughout North America and Eurasia,” said Bony Dawood, president of Dawood Engineering. “This partnership expands our reach into the utility, energy, architectural, factory, logistics and retail space—empowering us to provide clients with turnkey asset management solutions to better visualize, analyze and improve global infrastructure.”

ArchiTube creates active 3D models for international clients that can show a client architectural, construction, engineering and more in combination with scanning, structural, inventory and underground installation details, Dawood wrote in a press release.

“Infusing BIM into Dawood’s suite of leading-edge surveying and Esri-based GIS platforms equips clients with tools to better integrate technical documents,” said Grewenda. “Technologically and culturally, we share the same sustainability, diversification and community support goals.”

York County accounting and consulting firm hires M&A director

Jeffrey Adams, Director, Mergers & Acquisitions at Stambaugh Ness

Stambaugh Ness announced the hiring of a new director to lead the Springettsbury Township, York County-based accounting and consulting firm’s new architecture and engineering mergers and acquisition group.

Jeffrey Adams, former senior vice president, treasurer and director of financial planning and analysis at CHA consulting in Duluth, Georgia, accepted the position after 30 years of strategy and operations experience, Stambaugh wrote in a press release this week.

Prior to working at CHA Consulting, Adams held positions as chief financial officer at Wolverton, a subsidiary of CHA. He also held a number of positions within the Wendy’s Company, including vice president of finance and senior director of financial planning and analysis.

As director, Adams will partner with architecture and engineering (AE) clients on both the buyer and seller side.

The mergers and acquisition group is new for Stambaugh Ness and is part of the firm’s AE advisory practice area and service line that it launched this March. Along with mergers and acquisitions, the practice offers ownership and leadership transition and business improvement strategies.

Stambaugh Ness has locations in Springettsbury Township, York County; Agusta, Georgia; and Dublin, Ohio.

York architectural firm to open new office in Lancaster

John Snavely, director of Lancaster operations and Morgen Woodford, project designer, are the first to staff Mulá Group’s new Lancaster office. PHOTO/PROVIDED

York-based architectural firm Mulá group is opening a new location in Lancaster, headed by a director of operations with years of experience in the county.

Mulá, a firm that specializes in architecture, interior design and engineering, is set to open its second location in mid-June. To lead the new office, the York business has hired John Snavely as its director of Lancaster operations.

Snavely joins the firm after five years at Lititz-based Derck & Edson where he held positions as a project architect and most recently as a project manager.

Mulá has already worked on a number of projects in Lancaster County, including the UFC GYM Lancaster in Park City Center and The Hive coworking space in Lancaster and Elizabethtown.

“As word of our work has traveled and our contacts have expanded, we have done much more work in Lancaster,” said Snavely. “It’s a growing market on that side of the river and one we think has potential to build our brand.”

The firm employs 17 people at its York location. The new Lancaster office, at 480 New Holland Ave., will be staffed by Snavely and Morgen Woodford, a project designer.

Mulá differentiates itself from its competition in the architecture space by being a one-stop shop for customers thanks to the firm’s engineering expertise, said Snavely.

“They can come to us and we can manage basically every aspect of the project aside from construction,” he said. “We have a background in health care, commercial and interior design as well as senior living and education. We have a diverse portfolio and experience that we can bring in from other segments.”

A post-pandemic paradigm shift is coming to the workplace

Workplace design is of continuous interest to members of the AEC (Architecture, Engineering, Construction) community. The workplace is a linkage of technology, community and people’s livelihood. Office environment designs have been experiencing a paradigm shift away from closed individual private offices and cubicles into an open and social environment. Office spaces designed to encourage increased collaborative and creative work have become woven into all workplaces, extending far beyond technology and startup companies. 

This current pandemic has thrust workplace design into its next paradigm shift. Humans are social beings and want to escape the past confinement of lockdowns. Some people will desire to go to the office to connect with other people, but still want to feel safe and healthy. The ability to go to a workplace that is flexible and understanding of each person’s unique needs and levels of comfort will be essential to employee well-being. Achieving this flexibility and sensitivity may mean redesigning an office to have each employee physical distancing while working, or it may result in people continuing to work from home. The employee’s wellness will be the top priority in any case.

Architects and designers are being called upon to help resolve the inherent conflicts in workplace design beyond this pandemic. The AEC industry is realizing that the community health enigma may be one of the greatest challenges in the commercial sector of their practice. 

There are existing requirements for our built environments to reflect the same health standards people have come to expect from their peers. For example, LEED became common design as best practices and now WELL design will also be part of best practices. Wellness aspects must be implemented throughout all buildings by management because it promotes a healthy environment for occupants and the surrounding community.

Cleanable spaces will also be top of mind and there will be a rise in the use of antimicrobial surfaces in workplace design. However, this does not mean all offices will become full of surfaces made out of naturally antimicrobial metals. Woods and natural stones have been shown to aid in antimicrobial growth. 

The conventional wisdom prior to the pandemic was that offices were critical to productivity, culture, and winning the competition for talent. Companies competed intensely for prime office space in major urban centers around the world, and many concentrated on solutions that were seen to promote collaboration. Densification, open-office designs, hoteling, and co-working were the drivers.

Estimates from McKinsey & Company suggest that in early April of 2020, 62% of employed Americans worked at home during the crisis, compared with about 25% a couple of years ago. Many people have been surprised by how quickly and effectively technologies for videoconferencing and other forms of digital collaboration were adopted during the pandemic. The results, surprising to many, have been better than imagined for numerous companies.

McKinsey & Company research also indicated that 80% of people surveyed reported that they enjoy working from home. Forty-one percent say that they are more productive than they were before and 28% that they are as productive. 

The eliminations of long commutes and travel were major reasons why employees found more productive ways to spend that time, enjoy greater flexibility in achieving work/life balance and deciding that they prefer to work from home rather than the office. Another benefit envisioned is that many organizations think they can access new sources of talent with fewer locational constraints, adopt innovative processes to boost productivity, create an even stronger culture, and significantly reduce real-estate costs.

Workplaces and work need to be and currently are being reimagined. Here are a couple examples of how the transformation is occurring by discovering and developing:

New ways to perform work. Organizations adapted to continue collaborating and ensuring that the most important processes could be carried on remotely during the pandemic. Reimagining and reconstructing processes and practices has served as a foundation of an improved operating model that leverages the best of in-person and remote work.

New methods and techniques to retain and recruit talent. Competition for talent has been fierce for the past few years. Simultaneously, some groups of talent have increasingly resisted relocating to their employers’ geographic locations. Employers are finding that employees can work totally remote; in a hybrid system of remote and on site; or on site.  The redefining and constructing how employees will work brings a strategic advantage that does not rely on relocation. 

Redesigning the physical workplace.  Technology will drive the design of the future office and play a central role in enabling employees to return to office buildings and to work safely before a vaccine becomes widely available. Examples of this will include when and how employees enter the workplace and their workspace, the intervals of office cleaning, whether ventilation and air quality are sufficient and how employees will be physical distancing while working. 

The AEC community has an integral role to play in the future workplace environment. A strategically well-planned return to offices of the future presents an amazing opportunity to reinvent the role the office plays, as well as create a better experience for talent, improvement of collaboration and productivity, and cost reduction. Transformational thinking, anticipatory organization leadership and a commitment to capitalize on the next paradigm shift in the workplace environment will create the next great companies.

Technology is playing and will continue to play a very strategic and significant role in the future workplace environments and I want to leave you with this thought from Michael Dell, founder, Chairman & CEO of Dell Technologies.

“Technology now allows people to connect anytime, anywhere, to anyone in the world, from almost any device. This is dramatically changing the way people work, facilitating 24/7 collaboration with colleagues who are dispersed across time zones, countries and continents.”

Glenn Ebersole is a professional engineer and is the Executive Director, Strategic Business Development/Marketing for RCS Construction in Collegeville. He can be reached at [email protected]or 610-415-1130.

SummerQuest 2020 Wee Build Fridays, ages 3 – 5 | Kreutz Creek Library

Stop in the Library and start building!  Wee Build STEM materials will be available for your use to enjoy hands-on learning with your young children.  STEM learning focuses on Science, Technology, Engineering and Math in a fun, creative way.  Building materials offer children an almost infinite variety of opportunities to express themselves, from constructing simple designs to veritable engineering feats of bridge building.

SummerQuest 2020 Wee Build Fridays, ages 3 – 5 | Kreutz Creek Library

Stop in the Library and start building!  Wee Build STEM materials will be available for your use to enjoy hands-on learning with your young children.  STEM learning focuses on Science, Technology, Engineering and Math in a fun, creative way.  Building materials offer children an almost infinite variety of opportunities to express themselves, from constructing simple designs to veritable engineering feats of bridge building.

SummerQuest 2020 Wee Build Fridays, ages 3 – 5 | Kreutz Creek Library

Stop in the Library and start building!  Wee Build STEM materials will be available for your use to enjoy hands-on learning with your young children.  STEM learning focuses on Science, Technology, Engineering and Math in a fun, creative way.  Building materials offer children an almost infinite variety of opportunities to express themselves, from constructing simple designs to veritable engineering feats of bridge building.

SummerQuest 2020 Wee Build Fridays, ages 3 – 5 | Kreutz Creek Library

Stop in the Library and start building!  Wee Build STEM materials will be available for your use to enjoy hands-on learning with your young children.  STEM learning focuses on Science, Technology, Engineering and Math in a fun, creative way.  Building materials offer children an almost infinite variety of opportunities to express themselves, from constructing simple designs to veritable engineering feats of bridge building.