Molded Dimensions Journey Into Employee Ownership

May 13, 2015

screen-shot-2015-05-13-at-9-23-14-amWhat’s In an ESOP?
Written by: Mike Katz, President

In late 2000, when I learned about employee stock ownership plans (ESOPs), I became intrigued at the notion of shared ownership and what it could mean for an organization’s health. Imagine if each person who works at a company truly thinks and acts as an owner would. An organization where the notion of “other people’s money” does not exist because it is everyone’s money.

An ESOP is a formal structure whereby employees of a business have ownership in that business. Generally speaking, any employee who works more than half time earns shares in the business as they continue to work for the business over a vesting period (5 to 7 years). As a shareholder, they are entitled to profit based upon their share, and if there is a distribution, that also is allocated to them based upon their share. It acts about the same as owning a publicly held stock with one exception: a publicly held stock can be traded for cash, whereas ESOPs are generally private, and the shares are not traded until someone leaves the company or retires. Share value is based upon a yearly valuation supplied to the company by an independent, outside firm.

Molded Dimensions implemented our ESOP when Linda Katz bought the majority of the shares April 25, 2001. At that time, the ESOP took out a bank loan to purchase their shares with the guarantee that the loan would be paid back by the company. We did that within three years, and our whole team here officially became owners.

At the time of the transaction, I remember feeling excited about the idea of shared ownership, but unsure how it would work in practice, and whether that ownership would actually take hold. MDI had a very participative culture before the transaction: we shared a lot of financial information with employees that is typically not seen in private companies, so the people were already primed for an ESOP. However, there was much education that needed to take place about ESOPs, our business, and our decision-making structure. We created an ESOP communication committee that set about explaining the way ESOPs work, and started quarterly business communications. Even so, we did not see the effects of the ESOP in our everyday work and culture until several years later when the first set of ESOP value statements started to show real value in people’s individual accounts. We could then explain how the profits of the business not only affect an employee’s profit sharing, but also their share value.

This is not to say the “profit motive” is the only force at work here. Over the first few years, employees also became accustomed to making daily decisions as an owner that maybe would have been made by a supervisor or manager in the past. This faster, more effective decision-making felt good to people and that had a positive effect on the culture of our business.

As I look back at this ESOP experiment almost 15 years later, I can say that it has taken hold and is now part of the MDI culture. Our business has more than doubled. We are cleaner, safer, have better quality, are a better friend to the environment, and deliver products on time to our customers. Our new products introduction process is second to none and we have just finished our first acquisition. But the most important measure is that we like coming to work and being owners. The culture is amazing and has now become who we are as a business.

Ready to consult with MD?

Call us at 262-284-9455 or fill out our contact form.

Contact Us