For Hal Gershman, the problem was one of succession: what to do with the North Dakota business that his father, “Happy” Harry Gershman, started in 1944, and that Hal took over and steered through multiple expansions starting in 1976. Hal’s daughter had her own career and wasn’t necessarily interested in assuming leadership of Happy Harry’s Bottle Shops, the company that now comprises two stores in Grand Forks, N.D., and three in Fargo, N.D.

The solution Gershman worked out over an eight-month process in 2015 was to start an employee stock ownership plan, or ESOP. “I was interested in protecting the future for the employees,” Gershman said. “I like to tell people that when I was younger, I was a pretty damn good retailer. These people are better than I was. They know how to taste, they know how to buy, they’ve got the culture of our service – how we treat people.”

The ESOP that went into effect at the end of 2015 rewards employees and also maintains the culture of Happy Harry’s. “It’s a lifetime of work of my father and a lifetime of work of myself. It’s one way to protect the legacy of your work,” Gershman said. “It’s always premised on having really, really qualified people, and I have that. If someone’s thinking of an ESOP, you have to have your people in place to do it.”

ESOPs vary considerably from company to company in the details. The Happy Harry’s plan requires an employee to work 1,000 hours in a year to qualify. Once employees qualify, the number of participatory shares they receive is based on time and income; the higher the salary, the more stock they will have in the business.

At the end of six years, they are entirely vested in what amounts to a retirement plan. If they leave the company, their stock is paid out like a 401(k) plan. Gershman remains president and chairman of the board for Happy Harry’s, working on strategic planning and advertising for the company. But the new ownership arrangement also allows him more time for other things.

Culture and legacy

Two of the words Gershman uses to describe his experience with forming an ESOP show up often when other exectives talk about their own path to employee ownership: culture and legacy. Steve Storkan, director of ESOP administration for Alerus, the Grand Forks-based company that helped Gershman set up the Happy Harry’s plan, says a desire to see company legacy continue is one of the common features of many ESOP companies.

For example, Grand Forks-based AE2S, an engineering and consulting firm with offices in both Dakotas, Minnesota, Wisconsin, Montana and Utah, had a culture that recognized the worth of employees from the time the company formed in 1991, CEO Steve Burian said. Burian, who co-founded the company with President Charlie Vein, said starting an employee stock ownership plan was a natural extension of that. And it made sense because the company was already adding “junior owners” over the years – so many that by 2017, 44 people (including the two founding owners) owned a part of the company.

“That process got to be cumbersome,” Burian said. “One major advantage of the ESOP is that it created a much more defined and sustainable process for transitioning shares over time.” It also fit the company’s culture in that the new plan allocated stock to every employee helping to make the business a success – providing additional income for their retirement, while providing some tax advantages that can help fuel the company’s growth.

Read more at Prairie Business Magazine