When your employees own your business

Who owns Modern Group Ltd? The employees do -- 100 percent. "Quite honestly when you call Modern and you speak to the receptionist or to me or to the technician, those people are owners of this business and they have a vested interest in making sure you are happy," Paul Farrell, the company's chief executive, told me in our Leadership Agenda interview published in Monday's Philadelphia Inquirer.

"The employees are the owners, so the profits of Modern are shared among the 300 people who work here," he said. "So that is a very unique proposition. We portray that to the marketplace. We advertise it."

Modern, in Bristol, started in 1946 as a distributor of warehouse equipment, particularly forklifts. It now also distributes power generators and arborist equipment, along with other large construction equipment.

As its founder, Joe McEwen, approached retirement age, he wanted to sell the business to the employees. Modern has an ESOP, an employee stock ownership plan. Joe McEwen handed the reins to his son-in-law, David Griffith, who has now phased out of day-to-day operation (Griffith is still chairman), with the stock transfer taking place over 10 years. "The foundation of this company is that we want good employees to participate in the profits of the company and it was Joe's belief that if he could get that, there was nobody in the marketplace that could beat them," Farrell told me.

Here's how it works: Modern is privately held. Each year an an independent auditor values its shares. If it is a good year, the shares are worth more. Six percent of the employees' pay goes into the stock. "You have that stock and you take the ride with the company," Farrell said. "When you leave, there may be X amount of stock sitting in an account for you and you take that payout over five years."

As valuable as that might be, it's not immediate. So "we have to be very competitive with the wages and vacation in the marketplace," Farrell said. The value of the ESOP becomes more apparent to workers as they stay with the company.

"As you are bringing someone in, I don't believe they really understand it , but once they are here, it really helps with retention," he said.

"As an ESOP, we share our numbers with everyone," Farrell said. "I had a conference call webinar this morning. What the webinar was me showing our employees the first half results, good, bad or ugly. Right now, they are good, coming out of the recession. The employees get to see, to the penny, how much money we are making and hopefully they'll rally around it and say they are going to make more."

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