John and Pam Sappingfield, owners of ServiceMaster Restoration Services in Concord, Calif., recently sold ownership of their business to their employees through an Employee Stock Ownership Plan (ESOP). The plan essentially allows all employees, regardless of position to become part owners in the business. All employees are eligible and become fully vested after being with the company for five years.

 “The main thing was to give good employees a reason to stay for life,” said John. “We have learned over the years that turnover is the kiss of death. This gives them good reason to stay.”

Another mitigating factor was that the federal government encourages this type of business ownership by granting tax incentives that essentially gives federal tax-exempt status to the business. The tax savings is then used to buy shares in the company.

John and Pam already had a succession plan in place – one that saw their daughter, Shawna and their longtime vice president, Charles Hoage, buying the company. But even they agreed the ESOP was the better plan because it benefitted everybody in the organization by providing employees more ownership of their long-term futures.  

Under this new ownership arrangement, John and Pam still retain complete management control of the company along with their senior leadership group, which is then overseen by a four-member board of directors. Just as in conventional ownership, John and Pam have the option of selling their interest in the company at any time. At that point, they would transfer the final 1 percent of the company to release themselves of ownership.

Employees’ response to the new ownership arrangement was overwhelming. John and Pam scheduled a company-wide breakfast one morning that included their attorneys, ESOP planners, accountant, bookkeeper, and public relations people.

When the announcement was made and the employees realized what it meant to them, they gave a standing ovation to John, Pam and their leadership team. “It exceeded my hopes and expectations,” said John.

With a few months having passed since the announcement, John feared they might second guess their decision, but the complete opposite has occurred. They just had one of their busiest months in the company’s long history. “It was unbelievable how wonderfully we performed and we feel that it’s related to the ESOP,” said John.

Creating an ESOP was a huge decision for John and Pam, but it was a move that embodies the spirit of the corporate objectives. John summed it up best, “We have been blessed to develop a management team that I only dreamed of having in place and now they all have some ownership for themselves and their families’ futures.”