"An Employee–Owned Company" Explained
ESOP stands for Employee Stock Ownership Plan
Capture Technologies is a small Employee-Owned Company – or an ESOP. So, you may ask, “What is an ESOP?” An ESOP is a kind of employee benefit plan; similar in some ways to a profit-sharing plan. In an ESOP, a company sets up a trust-fund, into which it contributes new shares of its own stock or cash to buy existing shares.
Shares in the trust are allocated to individual employee accounts. Although there are some exceptions, generally, all full-time employees participate in the plan. Allocations are made either on the basis of relative pay or some more equal formula. As employees accumulate seniority within the company, they acquire an increasing right to the shares in their respective account – a process known as vesting. Employees must be 100% vested within three to six years, depending on whether vesting is all at once (cliff vesting) or gradual. For example, our employee owners at Capture Technologies are vested in five (5) years.
Private companies must have an annual outside valuation to determine the price of their shares. In private companies, employees must be able to vote their allocated shares on major issues, such as closing or relocating, but the company can choose whether to pass through voting rights (such as for the board of directors) or through other means. In public companies, employees must be able to vote on all issues.
Some of the uses for ESOP are as follows:
To buy the shares of a departing owner: Owners of privately held companies can use an ESOP to create a ready-market for their shares. Under this approach, the company can make tax-deductible cash contributions to the ESOP to buy out an owner's shares, or it can have the ESOP borrow money to buy the shares.
To create an additional employee benefit: A company can simply issue new or treasury shares to an ESOP, deducting their value (for up to 25% of covered pay) from taxable income. Or, a company can contribute cash, buying shares from existing public or private owners. In public companies, which account for about 5% of the plans and about 40% of the plan participants, ESOPs are often used in conjunction with employee savings plans. Rather than matching employee savings with cash, the company will match them with stock from an ESOP; often at a higher matching level.
So, as an Employee-Owned company, we encourage our Employee Owners to provide outstanding customer service, to go above and beyond for each customer, and to take care of customer complaints immediately.
Kevin Grant
ESOP Committee Chairman