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Last Update: Thursday September 23, 2021

Key Idea: Use Ownership To Recruit

Employee Stock Ownership Plans are good for recruiting and retention of great people and they can also change the culture of an organization.   This is Ned Lester formerly of Maxim Systems.

Think about it

Do you think you could attract more talent if you offered stock options or put an ESOP in place?

Clip from: Employee Stock Ownership Plans (ESOP)

Meet Ray Smilor, Rady School of Management, Univ. Calif. San Diego

SAN DIEGO: In this special episode you will meet many people who understand Employee Stock Ownership Plans (ESOP).   ESOPs are keys to the future for any growing business.  Though each word is quite operative, the most important is ownership.

To understand ownership, we have to understand something about the value of what is owned. It is a lot more than a  business valuation.  It is about business sustainability. 

Ray Smilor and Dr. Robert Beyster (SAIC) are experts on the subject.  Once a person is actively participating in the bottom line or the profit line of the business, once they are vested, don't you think they'd act differently and care more? Ray Smilor says that typical productivity increases 4-5% per year.

What would that do to your profit line?

Go to all the key ideas and videos from this episode...

Maxim Systems, Inc. (TG)

Tom Griffith, VP Marketing & Bus. Development

1455 Frazee Road
Suite 100
San Diego, CA 92108
6195742400

Visit our web site: http://www.maximsys.com/

Office: 6195742400

Business Classification:
Systems Management

Year Founded: 1998

Use Ownership To Recruit

RAY: Good companies that really effectively set up an ESOP, establishing a kind of citizenship with all the employees and citizens have rights and responsibilities.

The rights of a citizen, of an employee owner is: `I have a right to know the financials of the company. I have a right to be informed. I have a right to know the strategy of where we're going. I have a right to ask questions. I have a right to have an input to this.'

Those are rights. But as an employee owner, you have responsibilities: `I have to perform. I have to do my best. I have to ensure the company runs effectively. I have to be open and honest about what I'm doing.'

These are the rights and responsibilities. And in good companies, I see that kind of citizenship at work.

RICK: Hey. So how are you guys doing?

Unidentified Woman #1: We're doing good.

RICK: Good. What are you up to?

HATTIE: (Voiceover) Rick Valencia, founder of ProfitLine, says it doesn't have an ESOP, but employees are given stock in the company he founded in 1992.

RICK: ProfitLine's in the business of offering telecommunications administrative outsourcing services to big enterprise companies. Basically what we do is we let them outsource the administrative tasks in their IT and telecom departments so they can focus on technology.

HATTIE: (Voiceover) In 2002, ProfitLine had 110 employees and was named one of the best places to work in San Diego.

RICK: And then again, having a graphical interpretation of that... (Voiceover) I always wanted to build a place where the employees would be owners, would be vested in the company, and would feel like it's a place that they consider their own.

Unidentified Woman #2: And I think that what...

RICK: (Voiceover) But of course, having that idea and making it a reality is quite a big leap.

Unidentified Man #2: (Making points about LEC intraLATA calls!)

RICK: Ah, excellent idea. (talking to Hattie) And I was thinking about it quite heavily as the company, of course, grew to around 50 employees and I needed help to get it done. So I went out looking for help. I found the Beyster Institute.

HATTIE: What did you have to do to start sharing stock?

RICK: First you have to understand your goal. What is it really you're trying to accomplish with this? And for me, it wasn't liquidity. It was about getting the entire team involved in the success of the company. So you define that. The next step is how much are you prepared to give up? And some want to give up very little. Others want to, for other reasons--maybe liquidity purposes--they're willing to give up a lot more. We wanted to put in a stock option plan that would get everyone engaged, which meant you had to do enough but it wasn't about liquidity so we didn't have to give up 50 percent of the company in order to make it happen.

NED: We provide the system that manages all of the intelligence information for the intelligence community.

HATTIE: (Voiceover) Ned Lester, a founder and the CEO of Maxim Systems, says offering ownership is the reason the company has grown so fast.

NED: In the spring of 1998, 24 of us did an employee buyout from a small company and formed Maxim Systems. The customer, the small business was in Los Angeles and we wanted to pursue Navy business, the Department of Defense business in the intelligence community and they wanted to proceed with commercial work. We went to the owner and we offered to buy out the San Diego operations and he agreed and we settled and the 24 of us chipped in and bought the company and formed Maxim Systems.

HATTIE: How did the 24 people come up with the cash to do the deal?

NED: We settled on the deal and we needed immediately $200,000 and I put $100,000 on the table and said, `Anyone else chip in,' and all chipped in, except one. And we were there and we've been profitable ever since.

HATTIE: Did you have a lead on a great project that you thought you could land or did you just start cold calling and knocking on doors to try to get a piece of business?

NED: That's what we purchased, were the two contracts. And it was a five-year contract with the government for providing this kind of service. So we were able to take that and then expand that effort into new work and to the company we have now, which is about 200 people, and we do about $45 million a year.

 

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