Editor's note: This post has been updated in April 2024 for comprehensiveness.
You may hear companies proudly proclaim they are employee-owned. But there's always some mystery to that sentence that leaves people wondering how employees "own" their company. Does that mean everyone is in charge? How does employee ownership work?
As Airline Hydraulics celebrates its 75th anniversary, let's explore our unique ownership model, the Employee Stock Ownership Program. This blog post will answer all the commonly asked questions about employee ownership and the true meaning of being a 100% employee-owned company.
Interested in working at a 100% Employee-Owned Company?
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Employee ownership means no single person, family, or third party is a majority shareholder of company stock. Instead, the company's stock is allocated among employees through shares (details on this to follow).
When first hearing about an ESOP, people may joke, "I guess I can fire my boss!" But this is not how employee-owned companies function. The corporate structure and management roles of an employee-owned company mirror those of most workplace organizations.
However, working for an employee-owned company is a positive experience because employees at all levels of the organization, from the bottom to the very top, have the same stock ownership opportunities, which results in a (potentially) big payout upon their retirement.
Learn more about the ESOP model in our video, "What It Means To Be A 100% Employee Owned Business | ESOP 101."
With everyone working hard to increase their payday, all of the stakeholders reap the benefits. Consider an ESOP a benefit for workers because these programs tend to be adopted by companies with a strong company culture and lower employee turnover rates. Additionally, employees enjoy larger retirement plan balances resulting from the growth of their stock shares as the value of the company increases.
The corporate advantage of sponsoring an ESOP is the company becomes exempt from corporate federal income taxes. But it's mutually beneficial for everyone involved. It has a profound impact on company culture, employee morale, and retention. When a company is 100% employee-owned, employees have a true stake in the company's success and feel more inclined to make day-to-day decisions that drive businesses forward. When Airline's employees take pride in their work, it's because they have a real investment in the company's success. This is all reflected in our company culture.
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"I work for Airline because of the collaborative work environment. We all work together as a team to get the job done." Says Airline Hydraulics Internal Cylinder Repair Coordinator, "To me, true ownership means taking the initiative to bring about positive results. I take pride in my work and will go the extra mile to complete a task."
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As mentioned earlier, management roles for an employee-owned company mirror those of most workplace organizations. Each company has its own process for overseeing its ESOP, and its company as a whole.
Regarding Airline, our board of Directors works for our employees (the shareholders). The Board of Directors oversees Airline's management, making sure all activities are to the benefit of the company (and shareholders by increasing the stock valuation). Airline's CEO and management team report to the board. Then the board reports to the Trustee, who is the caretaker of Airline's stock.
This is a tricky question, so it's a little easier to imagine this concept through one of my favorite foods - pizza!
When employees leave the company or sell back their shares, the pizza pie gets larger. So, for example, if the year was full of people retiring, the pie would be bigger, so employees could enjoy a bigger slice that year.
Also, the number of people splitting the pizza pie changes every year. If the company size is smaller that year, fewer slices would need to be cut and each person would get a bigger piece. And conversely, if there are more employees, (like there was an acquisition), we'd need more slices to go around, and each piece will be a little bit smaller.
Other elements may also affect the pie size and the number of slices it's split into, but those two are the major ones that explain why employee share amounts can change a lot year over year. But despite these fluctuations, at Airline, the process and calculations are the same each year, ensuring every employee gets their "fair share."
When an employee-owner leaves the company, the company purchases back their shares. At Airline, that individual will receive payment for their vested ESOP balance through five equal installments over five years, after a five-year waiting period (in most cases).
Airline has paid millions of dollars of ESOP money to its retirees. Learn more about some of them by watching "Airline's Wall of Champions – Celebrating the Legacy of Our Employee Owners."
The concept of an employee-owned company through an Employee Stock Ownership Program (ESOP) is intriguing and beneficial. It truly demonstrates shared success. When a business is 100% employee-owned, like Airline Hydraulics, the benefits are twofold.
The company thrives through a collaborative work environment, and employees are more invested in making decisions that drive the business forward. Furthermore, an ESOP offers financial benefits, creating a purposeful environment and a valuable payday for employees at retirement.
Ultimately, an ESOP facilitates a unique team environment in which everyone has a stake and works toward a common goal—the company's success.
Have a question about employee ownership or Airline Hydraulics? Let us know in the comments below!
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