Metal fabricator puts stock in employees
Rapid-Line marks one year of being employee owned, poises for growth under employee stock ownership.
Before Mark Lindquist retired as CEO of Rapid-Line in 2016, he invested some shares of his company’s stock in his employees with the vision of later turning over the company to them.
The new owners, now celebrating their one-year anniversary of being 100 percent employee owned, are poised for growth that they attribute to their stock ownership trust.
The Employee Stock Ownership Plan (ESOP), in which Lindquist enrolled his metal fabrication company in 1986, is a trust that allows employees to purchase stock in their own company.
Rick VanDis, current CEO of Rapid-Line, said once employees begin working for the company, they automatically begin accruing stock investment toward their retirement.
“It’s not like they’re getting thousands of shares a year,” VanDis said, “but they earn portions. And over time, they grow a nice nest egg.”
Though employees at Rapid-Line begin earning stock from Day 1, they only earn the full value of their stock after at least five years with the company. Rapid-Line’s ESOP is set up for employees to earn 20 percent on their investment for each of the five years until they are fully vested in the company.
“Our plan is written for 1,000 hours,” CFO Mike Helms said. “After the five years, then you’re fully vested. If you were to leave at that point, you will get paid out.”
When employees retire, they can sell their accumulated stock back to the company for whatever it’s worth.
ESOPs also grant employers an exit strategy, which VanDis said was Lindquist’s original intent. When planning for retirement, selling stock to employees can yield a good return for the owner once it comes time to retire and sell the company.
The aforementioned growth of Rapid-Line comes from the growth of their stocks, though VanDis added this comes with the condition they pay back the mortgage they owe for purchasing the company.
“The disadvantage is we start over with a debt because we had to buy the business,” VanDis said. “The advantage is, as we pay down that debt, the value of our stock goes up, and that appreciates for employees.”
Rapid-Line also offers a 401(k) on top of the ESOP. Ben Robbert, sales and marketing representative for Rapid-Line, said an ESOP complements a traditional retirement plan by giving employees more flexibility in how they manage their benefits.
“If I were to leave Rapid-Line and go somewhere else, I could take that stock with me,” Robbert said. “I could convert it and put it into a 401(k) at another company.”
Depending on an employee’s time and contribution, an individual ESOP can accrue a very large amount of stock, which translates into a greater retirement fund.
“At large, there are employees worth $100,000 — maybe even approaching $1 million,” VanDis said.
Justin Stemple, partner with Warner Norcross and Judd LLP, and the attorney who helped negotiate Rapid-Line’s ESOP, said the strength of an ESOP usually depends on the strength of the company.
“ESOPs are not a good option for companies that are failing or unstable,” Stemple said. “Usually, an ideal company is one that has a strong payroll, 25 or more employees contributing to the ESOP and revenue of at least $1 million.”
Rapid-Line employs 125 people and has estimated sales revenue of $18 million to $22 million. The company offers a wide range of metal fabrication services. VanDis said they fill about 400 to 1,200 jobs per week, with an average order size of 30 pieces. Jobs range from office furniture to agricultural equipment.
Though the list of jobs per week is relatively uneven, Rapid-Line is diving into new creative projects to maintain productivity. VanDis said he believes, because employees own stock in the company, it motivates them to give more creative input and contribute more to the leadership of the company.
“You can have a dictator or you can have a democracy,” VanDis said.
“Once they start to realize what the ESOP can give them, they tend to stick around,” Helms said, “which is always a good thing. When employees have that ownership mentality, we gain from that.”
The 2014 results of an annual survey conducted by the Employee Ownership Foundation (EOF) revealed 93 percent of survey respondents said enrolling in an ESOP was “a good business decision that has helped the company.” Seventy-six percent of respondents indicated having an ESOP contributed to an overall increase in employee productivity in terms of revenue and profitability.
According to the ESOP Association, Rapid-Line is one of about 10,000 ESOP-invested companies in the U.S., which covers around 10.3 million employees. Approximately 4,000 ESOP companies are 100 percent employee owned.