The power of ownership

Caldwell Group workers have a vested interest

By Melissa Westphal

BusinessRockford.com

Doug Stitt is president and chief operating officer of The Caldwell Group Inc., 5055 26th Ave., Rockford. The company manufactures fabricated steel products and was incorporated in 1954, when Caldwell manufactured fabric lifting slings. Not only is the privately owned company expanding this year, it will become employee-owned through an employee stock ownership plan by the end of 2008. Stitt talked to Business Rockford about ESOPs and what the transition is like.

Why was the ESOP plan attractive to Caldwell? Our owner, Howard Will, wanted a retirement vehicle. His plan was to sell his stock to the employees. As the stock is paid off, it’s allocated to the employees. The process started in 2002 with setting aside cash, and the company took out a loan for the first portion of the stock. When I came in three years ago, my goals were to grow the company and continue that process. Right now, we’re 39 percent employee-owned, and the remaining 61 percent will be in effect by the end of the year.

How was the plan received? Initially, people were a bit skeptical — “How is this going to work for me?” By 2005, when they started to see our stock jump, people could look at their individual accounts and see that this is better than just a simple match or something similar. Their personal wealth is being affected. When people really think about it now and see how the stock price has appreciated and how the benefits packages have changed, including the ESOP, Caldwell is a very attractive employer.

In reality, it’s a great recruiting tool for us. It’s a great incentive to go out and say that you have an ownership stake in the company. There’s a lot of opportunity for employee involvement. There’s reinforcement when the company does well. There’s a professional side to it and the personal side through the ESOP.

Was there any resistance in the beginning? Our owner has always followed an open-book management policy. We have shared financial information with employees for a number of years. As we get farther into the ESOP plan, our goal is to make sure everybody understands the information they’re getting and to make sure they can translate what they do in their jobs to the ultimate value in the company.

The initial concern was that the benefit packages were changing. Once the ESOP took off, people saw the value in their personal accounts, saw the power of ownership.

Has the changeover been stressful? We started working on the process early to make sure we were ready. We’ve talked to different banks about the financing, and we’ve talked to different lawyers and trustees about the legal side of it to make sure the transition is smooth. We’ve worked with Prairie Capital in Chicago for an evaluation to make sure we’ve got everything in line.

Is the ESOP something you would recommend to other companies? And what advice would you offer? The ESOP field is somewhat specialized, so I recommend that companies find people within that community who have the experience to work with. There are plenty of professionals who can work through the challenges in the ESOP, and it will go much faster. There are two ESOP national associations, and the national conferences are great opportunities to learn and get exposed to the professionals out there. There is a lot to learn about ownership culture and making employees feel part of the business.

The company recently bought a third building for its campus. What does the future hold for expansion? We’re cautiously optimistic about the economy, but we need space. For that building, we’ll house our standards, what we build in larger batches. We’re doing well in the standards and the engineered-to-order products. The business is split close to down the middle with both. The neat thing about this company is that we serve the industrial and construction markets. We’re very diverse. We work with everyone from Boeing to steel companies to steel service centers, really a variety of industries.

When you get into the construction, we do a lot on the infrastructure side, not the residential. When you’re driving down the highway and you see the big barriers, we make the products that lift those. And when you see the big cement tubes that they’re putting in the ground for sewers, we make the products that lift those.

What are your plans for expansion in the global market? We are primarily in the U.S., but we’ve been exporting for a while. We’ve got the opportunity to continue. Typically in any market, before you industrialize, you need the infrastructure. We’ve really got the products for both stages. Right now, we’re sticking to North America, but the past couple of years, we’ve shipped products to India and Turkey, places like that. Right now, we just accept inquiries. Over the long term, we want to get our own salespeople into those areas.

Reach staff writer Melissa Westphal at 815-987-1341 or mwestpha@rrstar.com.

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What is an ESOP?
Employee stock ownership plans, or ESOPs, are essentially retirement plans in which the company contributes its stock for the benefit of its employees. With an ESOP, stocks are never bought or sold directly. In almost every case, ESOPs are a contribution to the employee, not an employee purchase.

An ESOP is similar to a profit-sharing plan. Shares are allocated to individual employee accounts. Allocations are made either on the basis of relative pay or some more-equal formula. When employees leave the company, they receive their stock, which the company must buy back from them at its fair-market value.

Sources: Securities and Exchange Commission, National Center for Employee Ownership