He also essentially gave his business to his employees. He was known in the community (I live in the area) as being a very generous person and all around mensch.
I don't mean to cast aspersions at Bob or his company, but articles frequently suggest that Bob gave his company away and that's simply inaccurate.
That's not what happens in an ESOP.
What does happen is that (as an account specializing in ESOPs explained it to me) owners sell their companies to employees at "the most boring accounting valuation available."
This does mean that the owners are often leaving significant money on the table. A competitor or investment group might be willing to offer a multiple of that "boring accounting valuation" in order to realize future growth, or recognize the value of eliminating a competitor or keep another company from getting a competitor.
But it's typically far from nothing.
The reason I suspect that Bob's ESOP transaction happened in stages over a 10-year period (from 2010 to 2020) was that companies don't typically have the cash-on-hand to buy out an owner all in one go, even at that lower "boring accounting" valuation.
Don't get me wrong. I think ESOPs are a great tool and should be used more often. I've had the chance to work with several ESOPs, and companies going from family-ownership to ESOP ownership. Employees really do behave differently when they "own" the company and have a direct stake in its future, and ESOPs provide stability and "employee first" thinking that corporate ownership and investment groups simply won't.
Bob absolutely did the right thing and should be commended for it. But it's helpful to accurately understand what actually happens in an ESOP transaction as well.
I don't agree with the "founders take all" model where risk and initial investment trump all future efforts and contributions. At the same time, there are merits to creating, managing, and sustaining a company which deserves some reward. Selling the company to workers over 10 years at a price they can feasibly afford while still earning good salaries and maintaining good finances seems kind of perfect to me.
I don't know the specifics; perhaps the company had to go into debt and the acquisition was a precarious thing. Regardless, it seems to me that a scenario where the sale is fair to both parties in this way seems ideal. The founder/owner is compensated reasonably and the workers gain agency and control over the capitalization of their own labour.
That's only to say I don't think it would need to be a gift to the workers to still be a virtuous or good thing to do. If it was a gift, great, that's nice that the owner can afford this and the workers get an incredible windfall they can all share in. It doesn't seem innately good because it's a gift, though.
What is the benefit to the employee?
Employee-owned just means that employees are the shareholders.
now imagine if a company's only shareholders are the employees who work there. how much different would a company act if the people to whom the leadership are responsible are the employees themselves?
Voting is one way to get a majority opinion, but of course that doesn't make it right. Since everyone is in a different place in life what may be good for one (maximising income before retirement) may conflict with another (ensuring job stability and sustainability for the next 20 years.)
This is all true regardless of the decision making group - board of directors, c-suite, or employees.
So sure, some employee groups would make decisions not aligned with my goals. But equally other decision making groups do that all the time too.
This is a hard problem because, as a decision group you "can't make everyone happy." So it helps if the employee group are mostly on the same goals page, and if there are leaders who understand the decisions in terms of the agreed goals.
Meaning, that regardless of profit share, its a good thing if you work at a place where your goals, and the leadership goals are aligned.
No, this is not necessarily true - what you're describing is more akin to a co-op, not an employee owned company.
An employee owned company just means there is an ESOP (Employee Stock Ownership Plan). So employees own some or all of the company's stock. That's it, it's an ownership structure, not a management structure. It says absolutely nothing about day-to-day operations or how decisions are made. The vast majority of employee owned companies are still run like a dictatorship.
Source: I've worked for multiple employees owned companies. Both were effectively dictatorships. Literally zero voting whatsoever.
>What I described (bonuses over reinvestment) is a decision shareholders (employees) get to make.
Sure, My only point is there's nothing about being employee-owned that requires or even encourages allowing employees to vote on how money is spent, or anything at all for that matter. A privately owned company is just as likely to consider input from employees as an employee-owned company is.
Both employee owned companies I worked for the board made those sorts of decisions without any say from employees.
> Both employee owned companies I worked for the board made those sorts of decisions without any say from employees.
If there was 100% (or majority) employee ownership, would the employees not have the ability to use the general meeting process to eject board members they didn’t like? Aren’t employees voting for nominees to the board, allowing them to use a write-in process to bypass a hostile board?
>would the employees not have the ability to use the general meeting process to eject board members they didn’t like?
Lol, no.
Trust me, it would have happened if it were possible at one, the board was public enemy #1 among rank-and-file employees.
>Aren’t employees voting for nominees to the board, allowing them to use a write-in process to bypass a hostile board?
Lol, no. The board itself selects board members.
I'm not exaggerating, we literally had zero input on anything.
I.R.C. § 409(e) requires voting rights for the employee shareholders in an ESOP on certain matters, so your “anything at all” is not true.
I understood the context of the question to be cases where employees own the majority of the company. Maybe that is not what the questioner was meaning though.
In general, once a company established an ESOP[1], they eventually become 100% employee-owned. Usually when an owner establishes and ESOP that's the end goal.
It just takes many years to get to 100% because the company has to purchase shares from the owner and distribute them to the employees. It's not something that can happen overnight because the company has to fund those share purchases. Yes, the owner is paid, they don't actually "give away" the company.
[1] I should mention, in case it's not clear, that ESOP is not a general concept - it's a specific type of retirement plan in US law that's got a bunch of requirements associated with it.
Here's a bit more info - https://www.esoppartners.com/how-esop-works it's directed at company owners and actually touts staying in control as an advantage of an ESOP -
>An ESOP is also a flexible, tax-advantaged business transition and corporate finance tool that enables stakeholders in closely held companies to access their equity without giving up management control of the company, which enables an owner to carefully plan leadership succession and a smooth transition
Some of the US based companies in this list have something to do with tech and exist for quite some time. Interesting how these are run (i mean they would probably have closed shop if they were to hand out bonuses instead of investing)
/i am just asking, as I don't know much about the subject/
https://en.wikipedia.org/wiki/Torch_Technologies a defense contractor with 519$ million revenue
https://en.wikipedia.org/wiki/Mathematica_Inc. (the last dot is part of the link, HN doesn't handle these)
https://en.wikipedia.org/wiki/Graybar
https://en.wikipedia.org/wiki/Dynetics they have 293$ m revenue
Normally companies seek to find the balance of "saving money" by paying lower wages that are just enough to entice mostly productive employees, and profiting from the employees labor.
To put it in the terms of Marx, the burgeouise pocketing the difference between the cost of their employees' labor and the value extracted from it is "surplus value", and is a manifestation of class warfare in capitalism that harms the working class. See also, "rent-seeking"
"a person of integrity and honor"
Capitalization is very important here! Also, e.g. if you are helping your uncle Jack off a horse, etc.
(The neutral version would be מאַן, which literally means man or husband.)
(For those wondering: “man” in Yiddish looks a lot like “mohn”, which is the same as German mohn.)
:)
https://en.wikipedia.org/wiki/Mensch
Jewish, not of German ancestry, but I've had a lot Yiddish spoken around me.
I no longer have my German language dictionary(-ies) or Duden books nor access to such where I am, sadly.