George & Lynch converts portion of firm to ESOP
DOVER – George & Lynch, the largest commercial contractor in Delaware, has launched an employee stock ownership plan, potentially cutting its hundreds of employees into an ownership stake of the firm.
Such plans, known as ESOPs, are still fairly rare in Delaware, although the most notable proponents of such plans include W. L. Gore & Associates, Wawa and Trinity Logistics. ESOPs reward employees’ longevity with a company and allow them to financially benefit from their employers’ success. Shares of a company are allocated at no cost to employees based upon tenure or seniority and are tax-exempt until they are cashed in retirement or upon leaving the company.
Many employers choose ESOPs after they are unsure of what the next generation of leadership would be, or to help in the recruitment and retention of workers.
For George & Lynch President and CEO Chris Baker it was a combination of both factors that led the firm to an ESOP controlling 30% of the company.
Currently, nine leaders own a stake in the firm, and several have begun thinking about retirement, although none have concrete plans, Baker said.
“We were really planning for what that might look like. Would we bring on selected owners or look at some kind of strategic partnership with somebody else?” he recalled. “Thinking about that and wanting to do something for our employees – people who have been with us for a long time – we decided to investigate an ESOP further.”
The construction firm decided to pursue a leveraged ESOP, in which a bank finances the buyout of shares from current ownership to place in the ESOP trust. That loan is then repaid over time by the tax-deductible contributions to the plan.
To start the ESOP, George & Lynch’s nine partners are each selling 30% of their individual stakes together, Baker said. Employees will vest into the program with their time at the firm.
So far, he said the firm’s employees are excited about the prospect of owning a stake in the company that would be rewarded upon departure or retirement. The announcement, coming just before the Christmas break, starts an education period for employees as well, Baker said.
The ESOP would also be part of George & Lynch’s sales pitch to potential recruits, especially as the trade industries have faced labor shortages amid the pandemic and even in the years prior, Baker said.
“Not only would [an ESOP] be something to do for the employees who have been here for some time, but it might even be more meaningful to somebody entering this industry to attract them to come to us versus one of our competitors,” he added.