Companies that use an Employee Stock Ownership Plan structure provide many benefits to the state by keeping tax dollars and jobs within Iowa's borders, Gov. Terry Branstad said during a visit to Two Rivers Marketing in Des Moines.
Branstad visited the company's office to recognize October as Employee Ownership Month in Iowa and to discuss the advantages of an ESOP business structure. Two Rivers Marketing is a wholly owned subsidiary of Dubuque-based Woodward Communications Inc., which owns TH Media and Biztimes.biz.
Woodward Communications established its ESOP in 1992. Today, WCI is majority employee owned -- 97 percent -- by more than 500 employees through its ESOP.
Branstad said he is supportive of the ESOP business model, noting the Legislature in recent years has passed additional incentives for companies that implement an ESOP. Iowa business owners who sell their companies to employees through an ESOP plan get a 50 percent tax deduction on capital gains earned from the sale. Iowa also offers grant support of up to $25,000 to help companies defray the upfront costs of feasibility studies when considering an ESOP.
When a private business owner in Iowa retires, selling to an out-of-state company could result in the loss of jobs or even the entire business for the state, Branstad said. If the owner sells the company to its employees through the formation of an ESOP, the state keeps the company, those employees and the related tax dollars, he said.
In addition, having employees who are committed to the success of the company as shareholders often translates into those employees becoming more active and engaged in their local communities, he said.
"This is a good ownership model that we think is beneficial to the state," Branstad said. "The people have a real incentive because they're owners of the business, they benefit from and they profit from the success of the business."
The benefits of the ESOP structure have helped Two Rivers Marketing grow and retain employees, company leaders told Branstad, with the company at about 125 employees, up from 45 in 2006.
A critical component of a successful ESOP company is employee education about the plan and company finances, WCI Chief Executive Officer and President Tom Woodward told Branstad. That's part of the culture throughout WCI, with regular shareholder meetings and educational forums, Woodward said. Educated employees have more buy-in, which benefits both the employees and the company as a whole, he said.
"Everybody knows what the numbers are," Woodward said. "We educate people on how we make money."
ESOP companies "just make a lot of sense" for Iowa, Branstad said.
"I'm a big believer in ESOPs," he said.
There are about 10,000 employee-owned companies nationally and approximately 200 ESOP businesses in Iowa and Nebraska that employ about 35,000 people, according to the Iowa-Nebraska Chapter of the ESOP Association.