January 30, 2020: Hammond, the international lead oxide and specialty additives firm, announced in January it had completed the first step in its employee stock ownership plan.
An ESOP is a retirement benefit plan, governed under the US federal government’s ERISA regulations, that annually transfers a portion of Hammond’s share ownership to its employees. Shares are redeemed upon retirement at their market value as determined by an independent trustee.
“Hammond is a special company in many respects,” says Terry Murphy, the firm’s chief executive and himself a family member with ownership and management links to Hammond’s start in 1930.
“Special in that we benefit from multi-generational plant and staff employees with a strong sense of family and company loyalty. The ESOP gives us an ownership structure to reward their commitment and to participate in the company’s continued growth.
There are restrictions and requirements for the ESOP’s employee-shareholders. Shares awarded are based on time with the company from January 1, 2019 and will fully vest in five years.
“So far, we have allocated 30% of our share ownership to the ESOP which is financed by a loan from the company. Our ambition is to transfer 100% of the stock over time.”
Murphy said the move is an alternative to a more recent trend of privately owned companies selling to private equity investment firms. “Some of our long-term shareholders were looking to further diversify their assets,” he said.
“So, we assessed what private equity firms offered and determined that a well structured ESOP met our need for manageament and business continuity as well as the best interests of our shareholders, employees, and local community.
“Certainly, our shareholders, management team, and employees are enthusiastic about this decision. We’ve been proud to do this transaction for our people.”
ESOPs are becoming more common in the US and can offer useful tax benefits to both shareholders and employees. There are some 7,000 active plans in the US with some 13 million participants.
“For shareholders, ESOPs are a valuable liquidity mechanism that minimizes business disruptions,” says one business advisory firm.
“For employees and management, ESOP participation is a reward for years of dedication and hard work and an incentive for future business growth. Further, the benefits of ESOP ownership can be accomplished on a tax-advantaged basis.”
