How employees bought out an aerospace corporation
Burbank, Calif. — It sounds like an employee's dream come true.
On the main entrance to Janco Corporation, a manufacturer of aerospace equipment, is a sign that proclaims, ''This facility is owned 100 percent by its employees.''
Back in 1975, tension was high. Janco, then a family-owned corporation, was on its way to possible acquisition by a conglomerate. Then the president, Robert J. Giove, heard about an alternative solution, one that would allow the family to divest itself of the company while guaranteeing Janco employees their jobs and seniority. The alternative is called ESOP (Employee Stock Ownership Plan), a trust that borrows money to buy shares in the company.
With the help of several pieces of tax legislation passed over the last decade, hundreds of companies have set up ESOPs for their employees. In addition to giving them effective ownership of their company, an ESOP helps provide financing to the company. Also, Congress hoped it would encourage productivity and promote capitalism. In the case of Janco, the stock obtained by the ESOP trust served as collateral for the loan used to buy the stock.
''All the employees who were participating in a profit-sharing plan dedicated their money to make the down payment toward purchase of the company,'' vice-president Russ Anderson said recently.
On Valentine's Day, 1981, an official note-burning ceremony commemorated the final loan payment. Since then, as the sign says, Janco has been 100 percent employee-owned.
How does employee ownership affect the company's daily operation?
''Management decisions are still in the hands of the chief executive officer and the board of directors,'' Mr. Anderson said, ''but we encourage employee input.''
That input does not include the kind of power over one's workplace normally associated with ownership.
''Nomination of the board of directors is not a democratic process,'' Anderson said. ''And, even with an ESOP, management can fire employees. You can't run a business as a democracy.'' He said employee ownership in the form of an ESOP essentially means ''a good retirement.''
Although all Janco employees participate in the ESOP from their first day on the job, benefits are skewed toward long-term employees, particularly those who have worked there for five years or more.
Voluntary contributions are neither required nor permitted and employees do not have to donate any wages. Instead, the equivalent of 15 percent of each employee's annual salary is allocated to the trust, which is administered by an independent trustee.
An annual account details each employee's yearly balance, current allocation, value of her or his share, company profits, and forfeitures for redistribution.
Forfeitures come primarily from employees who leave the company before they have worked five years. Those who leave because of disability or retirement receive a percentage of their accounts. The rest is divided equally among the remaining employees.
An employee of six years would have a 60 percent vested interest, sales director Sam Kay, an ESOP committee member, explained. On leaving the company, ''he is entitled to 60 percent of his account balance, which would be disbursed to him upon decision by the (ESOP) committee after a one-year break in service.
''In the event the employee is disabled, retires, or is deceased, he (or his heirs) will receive 100 percent of his account balance,'' Mr. Kay said.
According to Mr. Anderson, ESOP is primarily a tax-sheltered retirement fund.
''The major advantage of an ESOP is that you cannot arbitrarily be terminated prior to eligibility for a pension,'' he said, remarking that such terminations are common in many companies.
Once the idea caught on with Janco's 182 employees, the company experienced ''a turnaround in productivity due to the ESOP,'' Kay said. ''We've been improving our production techniques, our output, our deliveries, and some of it is directly attributable to ESOP.''
Getting the concept across was a problem, however. The irony of an ESOP, Anderson pointed out, is that the people who benefit most are those who no longer work for the company.
''Last year we paid out $245,000 to departed employees,'' he said. To bring that fact home to those still working at Janco, management made photocopies of the checks - with the names blotted out - and posted them for all to see.
If numbers are any indication, the message must have gotten through.
''Last year was the best year in the company's history,'' he said. ''We shipped in excess of $7.4 million.'' And this year, although the company is being adversely affected by the general economy, ''our income is running slightly ahead of last year.''
Anderson credits management's decision to ''have extremely diversified customers. We're not married to any specific aircraft company,'' he said. ''We service them all.''