When employees acquire the company: ESOPs offer an attractive alternative in Alaska.

• Author: Barbour, Tracy
• Position: FINANCIAL

A few years ago, Alaska Mining and Diving Supply underwent a major conversion: It became a 100 percent employee-owned business. The company established an employee stock ownership plan (ESOP) that enables its eligible thirty-five employees to earn a stake in the business. The more hours they work, the more shares they earn. And in six years, they get fully vested.

"It's a tremendous opportunity for those involved to be a part of an ESOP," says President and General Manager Nick Olzenak, who's been with Alaska Mining and Diving for eleven years. "From the employee side of things, it's being able to control our own destiny. The sky is the limit. It's an exciting time for the company."

Employee ownership of closely-held companies is increasingly becoming more popular in Alaska. Often, employees gain an ownership interest through an ESOP like the one created by Alaska Mining and Diving, stock awards, and stock purchases.

In Alaska S corporations, limited liability companies, and smaller businesses are more likely to become employee-owned entities. So are companies that are well established and successful in the marketplace. These businesses often have been around for years and are well entrenched in their industries.

ESOP Defined

According to the U.S. Securities and Exchange Commission, an ESOP is a federally-qualified retirement plan in which the company contributes its stock (or money to buy its stock) to the plan for the benefit of the company's employees. Essentially, an ESOP is a broad-based instrument that gives eligible employees a chance to gain ownership in a company without having to invest their own money.

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Technically, the ESOP is a trust which purchases the company's stock and holds it for the benefit of eligible employees. The ESOP maintains an account for each employee participating in the plan. Typically, employees must be full-time workers with the company for at least a year before they can participate. Shares of stock vest over time before an employee is entitled to them.

With an ESOP, workers never buy or hold the stock directly while they're still employed with the company. Instead, their shares are held in the ESOP trust as part of their compensation for work performed. If an employee is disabled, terminates, retires, or dies, the plan can distribute the shares of stock to them from their account. "The longer you're with the company after the ESOP is in place, the more stock you get," says Kim...