Owners try harder: Karmak implements
Employee Stock Ownership Plan
continued from What's new at
Karmak?
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Establishing an ESOP allows us to
make a smooth transition of ownership over a period of several
years. For many Karmak employees, this is their first experience
in an ESOP environment. The purpose of an ESOP is to enable
employees to acquire beneficial ownership in their company without
having to invest their own money. The advantage of the ESOP is
that employees are able to acquire this stock without paying a
current income tax on the stock. Again, this results from the fact
that the contribution is made entirely by the company and is
not taxed to employees personally as it is allocated. The
advantage to the company is that the ESOP makes pre-tax dollars
available to finance company growth and/or to create ownership
liquidity at the time of retirement.
The major theme in an ESOP definition
is "ownership." Ownership implies responsibility and
maturity of actions; people tend to take better care of things
that they own. Owners of a company have a vested interest in the
success of that company, and that motivation will affect
productivity. Adopting an ESOP to help increase productivity of
employees is not the same as saying that management viewed your
previous performance as less-than-stellar; it does mean that
there's always room for improvement, and relatively small changes
in the company's productivity rate can have a huge impact on
profits. "Improved productivity" does not always only
mean an increase in labor output; it also encompasses
cost-consciousness, investment in employee knowledge, and
reasonable equipment expenditures. In general, all that a company
can hope to gain by offering an ESOP is a business-wide insurgence
toward an entrepreneurial attitude; the mindset that "this is
mine and I will not let it fail." After all, entrepreneurs
are not cost-conscious because of some business school theory, but
because they are spending their own money.
The benefits of ESOPs are well
documented. As early as 1927, the founder of the Bank of America,
A. P Giannini, recognized that:
"Ownership by employees is
the only successful system for big business. A man has to have
more interest than his salary to produce the best that is in
him."
In addition, a study performed by the
National Center for Employee Ownership indicates that
employee-owned companies grew 5.4% faster than comparable
non-employee-owned companies. Over a decade, this differential
would result in the ESOP companies having sales 70% higher than
their non-employee-owned competitors.
The ESOP was established on the
belief that people work best when they work for themselves. The
goal of employee ownership is to align the self-interest of all
stakeholders in the business so that everyone shares the same
motivation to achieve higher profits. In the end, there is no
substitute for the internalized motivation that an employee stock
ownership plan provides. Self-interest does not need to be
taught.
Educating our employees
Karmak is trying to create a culture of ownership within the
company. Management is trying to raise awareness and understanding
of the ESOP, and wants to encourage each employee-owner to look at
how they can impact the bottom line. To better understand how we
can do this, an ESOP committee is being developed and will be made
up of employee-owners who are excited about the ESOP and committed
to sharing the message. These committee members will attend an
ESOP seminar to become better prepared to address questions or
concerns from their co-workers. This committee will also plan
events designed to further educate and heighten awareness about
the benefits of an ESOP. In addition, committee members would be
an information resource for new Karmak employees.
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