The SDG ESOP: From Shocked to Excited

Written by Eddy Hegland
on June 24, 2016

At our company meeting last November, SDG’s owners announced that we were becoming 100% employee-owned by way of an ESOP, or Employee Stock Ownership Plan. Essentially this means that over time, full ownership of SDG will be transferred to employees through stock allocations each year. I went through several different stages as I processed this new information, but ultimately I discovered how this change could greatly benefit SDG and its employees. This may be helpful for anyone who is in an ESOP at their work or their workplace is transitioning to a Employee Stock Ownership Plan, just remember that each plan could be different than how SDG has structured their ESOP.  Here’s how I reached that conclusion that our ESOP would benefit SDG and its employees.

1. Shock.

The first stage that I experienced was shock. Prior to the company meeting, I was not thinking about SDG’s future as far as any change to ownership or management, so it caught me off guard. But with one of our owners making the decision to retire, we all knew a succession plan would have to be addressed. Nonetheless, I hadn’t spent much time thinking about what exactly this meant for me and SDG in the long-run. Which brought me to my next phase… 

2. Questions, Questions, Questions.

The next few days I went into a period of asking myself many different questions.

  • What does this ESOP mean to me and to the rest of us at SDG? 
  • What would happen next? 
  • How will this affect me or my work? 
  • What changes will be made to how the company is operated on a day-to-day basis? 
  • Who would succeed our current owners? 
  • What will we look like in 1 year, 5 years or 10 years? 
  • What does an ESOP look like for other companies? 
  • Will this help SDG be more successful?

3. Research and Discovery.

The third stage I went through was one of research and discovery. I figured I better go find out more on what an ESOP was all about to help answer the questions that kept piling up. I started by reading the FAQ that SDG made available for some of my more basic questions. At a high level, I discovered that:

  • The ESOP would change the legal ownership of SDG, but the management structure and leadership would remain the same. 
  • Our three owners will serve on the Board of Directors and many years down the road leadership would transition to the next generation. 
  • We would continue to be led by our three core values – Superior Customer Service, Exceptional Employee Experience, and Responsible Corporate Citizenship – and our day-to-day business operations would essentially remain the same.
  • The ESOP would be an additional component to our current retirement plan.
  • The value of our accounts would increase as long as SDG operates profitably and the value of the company continues to increase.

Next, as a quality assurance specialist at SDG, I was interested in the numbers.  At the time of my research, there were approximately 14,000 ESOP plans in the United States and only about 10% of those were in the private sector. Around 40% of private sector ESOP companies are 100% employee-owned. If my math is correct, that leaves SDG in a 4% group of all companies. In my opinion, this may be the most significant piece of the ESOP announcement, as it’s extremely rare to be given the opportunity of “ownership”.

4. Understanding. 

After researching and discovering a lot of information, it brought me to a new stage of understanding. I now understand how special the situation is that we are 100% employee-owned. Not only will we have the opportunity to earn our shares, we will also get cash distributed to our accounts each year. That cash will be used to buy shares when someone retires or leaves, which will allow us to keep accumulating additional shares – and hopefully the value of SDG continues rising as we accumulate them, too. We should see a lot of growth, especially in the first 10 years that we are paying off the debt. 

In addition, I began to understand that things won’t be changing as drastically as I thought at the beginning. As a matter of fact, one of the primary reasons the owners decided to go with an ESOP (as opposed to selling the organization to an outside buyer) was to preserve the culture of SDG and keep operating as we always have. 

5. Excitement!

The stage I’m currently experiencing can best be described as excitement! After looking at a few different scenarios (by using one of my beloved QA spreadsheets) of how this might work out for myself and my fellow SDG’ers, this transition could end up being more beneficial than any 401(k) matching component. The more successful we are as a group, the more value our ownership and shares will have. 

SDG’s transition to an ESOP may have started out as a shock, but I’m excited about what the future may hold for us. As a part-owner, I feel empowered. I feel an added sense of security that we are hiring people that we all want to work with. And I feel that my actions at SDG have the power to affect the entire organization.  Although this may seem like a big responsibility, I trust now more than ever that we will be motivated to contribute our best for our customers, our community, our co-owners and our families just like our core values guide us to do. If we all handle this change correctly, as I believe we will, then it can be a great legacy to keep passing on as we continue to evolve and grow. 

If your company is moving to an ESOP please keep in mind that ESOP plans can be different for each company. This is an example of how ours at SDG works.