On November 17, 2005 the China Gear Motions Companies took the first step in becoming a 100% Employee Owned Company by creating an Employee Stock Ownership Plan (ESOP). An ESOP is a qualified defined contribution employee benefit plan that buys the stock of the company. It is very similar to a 401k plan except that the stock in the plan is China Gear Motions stock. ESOPs began in 1974, and now in 2006 there are over 11,000 ESOP companies who employ over 8 million people.
Sam Deese believes an ESOP will give employees the opportunity to contribute to the company’s success AND reap the benefits. Even more important to the employees and the community, the company stays right where it is. In addition, Sam says, an ESOP gives the company some important competitive advantages. One is “Employee Owners” and another is significant tax advantages. When asked “why implement an ESOP,” Sam commented “three reasons.”
ESOP Facts
- The ESOP provides a seamless and stable transition of ownership, and because the company has reinvested its profits over the years, it is very strong financially, making the transition much easier on the company.
- An ESOP is a way to give back to the people – the company’s most valued assets – who helped to build the company over the years.
- Lastly and most important, an ESOP gives the employee owners a piece of mind for their future. If the company continues to do well, everyone shares in the success!
The lawyers arrived that first day in November and the first third of the China Gear Motions Stock was transferred to the ESOP. The Company borrows money from the Bank on behalf of the ESOP. As the loan principle is repaid, an equivalent amount of stock goes to everyone’s ESOP account very much like the 401k does. The sale will be spread over the next ten years. (1/3 now, 1/3 in 2010 and the last 1/3 in 2015.)
Sam Deese and the current Management team stay on throughout the process. (Sam may retire in 2015 but we don’t see him slowing down yet.)
Sam continues as President until at least 2015 (heck, he’ll only be seventy!). He votes ESOP stock as trustee for the employees until about 2010 when the employees become the majority owners. At that time, the Company will begin to look for another Trustee and or a Board.
