Taylor Guitars is moving to a 100 per cent employee-ownership model with the help of the Healthcare of Ontario Pension Plan and Canadian non-profit Social Capital Partners.

Founded by Bob Taylor and Kurt Listug 46 years ago, the U.S. guitar maker has adopted an employee stock ownership program structure, enabling its staff around the globe to jointly own the company. Taylor and Listug, now both in their 60s, began to think about their management and company succession planning a little over seven years ago, says Barbara Wight, Taylor Guitar’s chief financial officer. Concerned about sustaining their legacy long after they retired, she says the owners were drawn to an employee stock ownership plan because it transferred the company’s capital to its employees.

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“Unlike [Canada’s] share purchase plans, U.S. ESOPs and the U.K.’s employee ownership trusts are broad-based plans that provide shares to all employees, at no cost,” says Jon Shell, managing director and partner of Social Capital Partners. “[It] delivers real wealth to people who don’t otherwise have access, and lets owners secure their legacy while selling for a fair market price. It’s an alternative we need in Canada, especially as we’re facing a wave of retiring baby boomers over the next ten years.”

The way it’s structured, Wight says, is the employees borrow money from the HOOP, Social Capital Partners and the owners, which they use to buy the company. “We took out a mortgage, basically to buy our company, and now [the employees] altogether — all around the world — co-own this company.”

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But, unlike with a conventional mortgage, she says employees aren’t at risk because they don’t have personal debt involved with the agreement. “In essence, the employees are going to earn this right by all of us together keeping the company strong and healthy and making profits to pay back our ‘mortgage.’ But none of us are personally at risk for it.”

As ESOPs are structured to benefit employees who work their entire career with a company and retire from there, notes Wight, the organization also had to consider its employees who had already given years of their life with the company. So the organization decided to allot all employees 10 points for every year of service, in addition to a point for every US$1,000 in salary. When compared to the entire employee pool of points, the company was able to calculate a percentage of shares that accommodated the many years of service for some of its existing employees.

Additionally, the organization pre-funded the ESOP back to Jan. 1, 2020. So, while Wight says there’s a six-year vesting period — starting at 20 per cent after the first year and increasing an additional 20 per cent every year until their sixth year, when it reaches 100 per cent — those employed as of Dec. 28, 2020, only have a five-year period.

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When employees returned from their holiday break this year, Wight says the company surprised them with the news. “They didn’t know what would happen to the company after the owners left . . . so I think there was a collective sigh of relief. The fact they were now owners was just the icing on the cake.”

According to Shell, employee ownership leads to higher salaries, fewer defaults and better-performing companies. “We know it keeps jobs in local communities and makes companies more resilient, with fewer layoffs, in economic downturns,” he says. “All of that is before you take into account the wealth-building benefits, which simply aren’t available to most people.”

Wight says, although the company has employer-sponsored pension plan programs that match up to five per cent of employees’ contributions available in several countries in which they operate, it wasn’t available for their employees in Mexico, which was one of the gaps in their Mexican benefits plan they wanted to fill. “It’s now possible for a young craftsman and artisan [employed with Taylor Guitars in Mexico] . . . to retire with intergenerational wealth.”

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