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Creating an Ownership Culture in the Workplace

August 13, 2004
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Although it may be hard to believe, I am a U.S. Congressman who knows what it means to run a successful business.

    I founded Plastic Packaging Inc. in 1957 with a second mortgage on my home. Since then, my company has grown to include three locations in North Carolina. Plastic Packaging now employs just over 300 people and took in about $42 million in sales last year. Many things have changed through the years, but one of the things I have learned about employing people will never change: employees are more productive, happier and financially secure when they are truly invested in their company and their company is truly invested in them.

    I believe in employees’ having a direct tie to the financial future of the company for which they work. In 1977, my company started an Employee Stock Ownership Plan (ESOP) to further that vision. An ESOP, unlike a stock-option plan (which can include any company’s stock), is required by law to invest primarily in the securities of the sponsoring employer. This makes an ESOP fundamentally different from a stock-option plan; ESOPs offer genuine employee ownership. When someone comes to work for my company, he or she knows that more than a paycheck will change hands; we are giving our employees a chance to become part of a team and to build real wealth for the long term. Over the years, almost every eligible employee has chosen to participate.

    Walking through my first plant (in Hickory, North Carolina), I can feel the atmosphere of cooperation that our ESOP helps create. My employees do their best to make the company successful, and they know that management is doing the same. This spirit of cooperation spills over to activities unrelated to our products and profits. For example, my company has received several awards for our charitable activities. One of the main reasons we can make such a large impact is the extraordinary number of employees who choose to volunteer. So many employees take part in our volunteer efforts because we treat each employee as a vital part of the company, and they believe in what we are doing.

    Furthermore, studies demonstrate that the overwhelming majority of employee-owned companies are more successful and treat their employees better than non-employee-owned companies. For example, in the most comprehensive study of ESOP companies ever done (by Rutgers), over 1,100 ESOP companies were matched against their counterparts for an 11-year period. The ESOP companies had a survivability rate 15 percent greater than the non-ESOP companies, had annual sales 2.4 percent greater on average, and provided more retirement benefits than their counterparts.

    Despite all this favorable data, I cannot say that ESOP companies are always successful. But I will say that they are usually high-performing companies that share with employees the wealth they help create and bring a real ownership culture into the workplace.

    When I arrived in Washington, D.C., in 1986, a primary goal of mine was to make it easier for small businesses to thrive. In the aggregate, small businesses employ many more people than large businesses, and small businesses are more connected to their communities and employees. While small businesses are a natural place for ESOPs to thrive, the laws of the United States have often hindered their development in the small-business arena. It was only in 1996 that S-corporations were permitted to form ESOPs. This allowed many smaller companies and their employees to tap into the potential of ESOPs. Unfortunately, much work remains to be done to remove impediments to and discrimination against ESOPs in the federal tax code.

    To that end, I recently introduced theESOP Promotion and Improvement Act of 2004. The basic thrust of this bill is to make minor changes in tax law to improve the operation of existing ESOPs and to make ESOP creation easier and more attractive. Much of the bill addresses the unequal treatment of S-corps and C-corps in regard to tax laws that affect ESOPs. As I mentioned, S-corps as of 1996 can form these plans, but--though I’ll spare you the obscure tax law--they’re not on the same footing as a C-corp. I am working now to muster bipartisan support for this bill.

    It is clearly in my interest as a business owner and an employer to create a workplace in which every employee knows that his or her work is valued. As a congressman, I feel it is my responsibility to help foster the creation of such workplaces across America. Although politicians in Washington, D.C., are not known for their business expertise or entrepreneurial savvy, I think they will understand that when employees have a genuine stake in what their company is doing in the marketplace and in the community, they will strive to do their best. This kind of relationship between employers, employees and communities strengthens our country and makes life better for us all.

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