D&D's ESOP aids retention, provides clean exit strategy

Ken Dillon will spend part of this week handing out new stock certificates to the 150 employees of Sparks-based D&D Roofing and Sheet Metal who hold an ownership stake in the company.

The certificates are an important part of the company's Employee Stock Ownership Plan, says the roofing company president, because they provide graphic detail about the ownership positions and their value held by each eligible employee.

And that knowledge helps ensure that the ESOP works in its role as an employee-retention tool.

"We try to make a big hullabaloo about it," Dillon says.

The stock-ownership plan launched in 2001 has helped D&D keep turnover far below construction-industry averages even when other builders scrambled for help as the region's economy boomed.

It's boosted the performance of those workers, too, as they watch costs more carefully wasting neither a bundle of shingles or a piece of copy paper.

"It gets people to treat their jobs as an owner of the business," Dillon says.

And, most important for Dillon, it provides an exit strategy that preserves the value of the company while rewarding the people who built it.

Currently, the 150 employees who are eligible for ownership about two-thirds of the company's staff of 225 own a 28 percent stake in D&D Roofing and Sheet Metal.

Within two years, they're expected to own the whole thing.

Among the owners of the company will be Dillon. Like other employees, he has been earning interests in the stock-ownership plan based on his longevity with the company and his earnings.

"I'm not going to ride off into the sunset," he says.

Without an Employee Stock Ownership Plan, Dillon says protection of the company's value would have been difficult during a transfer of ownership.

A potential buyer of a construction company, he explains, usually attempts to gauge the earnings potential of the firm.

That potential is found largely in the knowledge and the contacts of the company's employees assets who can walk out the front door, never to return.

By transferring ownership of the company to those workers, D&D Roofing hopes to maintain the value of the company even after Dillon and other managers retire.

But it's not an easy strategy to pull off.

"It's very difficult to put together, and it doesn't stop there," Dillon says. "The ongoing administration also is tough."

Some business owners also worry that they'll lose control of the company with an employee ownership plan. With ownership of the D&D plan based on employees' earnings and longevity, Dillon will remain the largest single shareholder once the ownership transfer is completed.

The federal tax code favors companies that transfer stock ownership to their employees, but the ongoing administrative costs essentially negate any tax savings, the D&D president says.

Even if the costs are a wash, the plan remains a powerful tool for retention.

One retiring employee a few months ago received nearly $100,000 for his share of the stock-ownership plan, a payment that came on top of his 401(k) benefits.

And that, Dillon says, is where the certificates come in.

When a worker's spouse reads the value of company stock on the certificate or hears about it at one of the events D&D schedules for its owners, the spouse is likely to question the wisdom of a job change.

The plan is less powerful as a recruiting tool among young workers, Dillon says, because they're more focused on their current earnings and pay little attention to long-term financial planning.

But for most of the company's staff, the stock-ownership plan is a powerful tool.

"Now when someone calls and asks to talk to 'an owner,' the person answering the phone call can say, 'I am an owner, how may I help you?'" says Dillon.