Guarantee Electrical EOTP Paying Dividends

As its first wave of employee-owners approach 100 percent vesting in Autumn 2010, St. Louis-based Guarantee Electrical Co. is finding that its 2005 decision to launch an employee ownership transfer plan (EOTP) is paying dividends even greater than expected.  In fact, the initiative has proven so invigorating to the financial and managerial underpinnings of the 107-year-old firm that it is looking to attract new merger partners from across the U.S. by using the prospect of employee ownership as a primary lure.

Guarantee ranks among the nation's largest electrical contractors with 2008 revenues topping $156 million, regional offices in Denver, CO and Granite City, IL  plus on-going operations in California.  The company has about 120 salaried employees and employs up to 1,000 electrical and communication craft workers at project peaks.

Guarantee's EOTP consists of two components - a Key Management Stock Purchase Program (KMSPP) and an ESOP.  For the KMSPP, the company's Executive Management Team (EMT) recommends participants to its Board of Directors.  In turn, the board approves all stock purchases.  Every non-bargaining employee with a minimum of one year of service, working at least 1,000 hours annually, qualifies for inclusion in the ESOP. "Only non-bargaining employees qualify because there is a lot of turnover among hourly construction workers," said Rick Oertli, president and chief executive officer of the company. "In addition, union workers have some very attractive benefits that nonunion employees don't have, so the ESOP helps level the playing the field," he said. Employees can purchase stock using company contributions that are set as a percent of base salary.  In 2008, Guarantee contributed 11.4 percent of each qualified employee's salary to the stock purchase fund.

Right now, salaried employees in the ESOP own 17.5 percent of Guarantee stock, while a group of executives and managers holds 56.5 percent, said Oertli.  Retired and non-working family shareholders of the once 100 percent family-owned company hold the remaining 26 percent - compared to the 62 percent they held when the EOTP was launched in 2005.  The goal, said Oertli is for the ESOP to hold 30 to 40 percent of the company's shares by 2012, with key executives and managers owning the 60 to 70 percent balance.

With the  successes of its 2003 acquisition of Kimsey Electrical Contracting, based in Denver, CO, and its 2004 purchase of St. Louis-based voice/data/video installer TEL-Vi Communications, growth-minded Guarantee is scouting for additional mergers in 2009.  It is targeting contractors with good reputations, annual revenues of $10 million or more, a solid history of performance and established market positions. 

"Our Kimsey and TEL-Vi mergers significantly broadened our managerial and engineering talent pools and have been consistently accretive to our bottom line.  Guarantee is a stronger organization today than it would be otherwise," Oertli said.  "The fact that we now offer a proven employee ownership plan sweetens the deal for merger candidates concerned about the long-term future of team members who have contributed to their firm's success.... Prospective new employees see a framework already in place to integrate themselves as owners. And historically, firms with employee ownership outperform concerns without that shared ownership."

Oertli's assertion was most recently borne out in research completed at the City University of New York in 2008.  The study, entitled Employee Ownership and Participation Effects on Firm Outcomes, posited that a typical 200-person employee-owned firm could be expected to post an almost $9 million annual sales advantage over a 200-person counterpart without employee ownership.  Using standard statistical methods, the average per employee sales advantage for employee-owned firms was a healthy 8.8 percent greater than non-employee-owned counterparts of the same size in the same industry.

Oertli believes other strategic advantages attributed to employee ownership surface in challenging economic environments. "Unquestionably, employee-owned firms tend to cultivate company-wide engagement and a ‘team' mentality.  That gives us a leg up as we compete for work in a tough economy," he said. "It also supports long-term continuity in management and strengthens our ability to retain and develop superior technical talent - factors that again enable us to compete more successfully."

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