Who's the Boss? ESOPs turn employees into owners.

• Author: Rhode, Scott
• Position: PROFESSIONAL SERVICES

Workers have nothing to lose but their chains, said Karl Marx. But what if workers own the chains?

Rope, wire, hoses, tubes, and chains are the stock-in-trade at Alaska Rubber Group (ARG), an employee-owned business in Anchorage, Its former CEO, Janeece Higgins, retired at the end of 2020, but she's still busy as a board member of The ESOP Association, a national nonprofit that promotes employee stock ownership plans (ESOPs), a financial mechanism for returning the value of a company to its workers.

The association guided ARG through the ESOP transition in 2006. "We didn't know what we didn't know, and ESOPs are a very different animal that most of us had very little experience with," Higgins says.

Now Higgins is sharing her experience, especially in October, which the association proclaims as Employee Ownership Month. That's when many companies announce their stock valuation, sometimes with a guessing game. Other events focus on educating employees or outreach to the community.

ARG has its own tradition. "We always did an ESOP breakfast, which is eggs, sausage, orange juice, and pancakes. Management would cook breakfast for the crew," Higgins says.

She really "drank the Kool-Aid" on ESOPs, Higgins recalls the owner of Arctic Wire Rope b Supply telling her when ARG acquired his company. She doesn't disagree: "I really feel that those who are building it should feel the reward of doing their hard work."

"What are profits for7" asks Scott Hamilton, president of JD Steel. The Arizona-based company employs up to 2,000 workers nationwide, and its ESOP pays for their medical and retirement benefits, just as profits fill any owner's pocket.

Hamilton became president of JD Steel in March after leading its Alaska region from the Palmer office built on farmland his family used to own, yet his share of profits is the same as anyone else with his seniority. "Doesn't pay me to have a black jet. Doesn't pay me to light cigars with $100 bills," he says.

Buying a Legacy

Across the country, more than 6,000 companies have ESOPs, according to the National Center for Employee Ownership. In 2019, the year with the most recent data, 239 new ESOPs were formed. They are most common in manufacturing and technical services companies, like JD Steel and ARG. The hospitality, healthcare, and retail sectors have the fewest ESOPs, but there are exceptions: Alaska Hand Rehabilitation and New Sagaya are both employee owned.

Alaska has approximately two dozen ESOPs, comparable to states with similar populations. Higgins believes that number is poised to grow due to generational turnover.

"They have what they call a...