Ask an ESOP Expert

Tim Heaston serves as Executive Vice President & Chief Financial Officer of ITA Group, Inc. , a mature ESOP-owned company headquartered in Des Moines, Iowa.?ITA Group is an engagement agency that creates and manages custom programs that motivate the people most important to its clients’ businesses. With nearly 1,000 employee owners across the entire community of companies, ITA Group is a longstanding success story in the ESOP community. Expanding ESOPs spoke with Tim about his experiences with employee ownership.

How did you start your career in employee ownership?

My first experience with ESOPs, I was staff auditor with a local CPA firm. I went down to Chickasha, Oklahoma. We were auditing a manufacturing company down there. I still remember that audit vividly. I was younger. We got in there. We were in a rural?community. It was the warmest welcome I'd ever received from an audit client. I went in and there was a sign that had my name on it. We were welcomed by the executives because our firm had a history?of helping to implement the EOSP, which became hugely beneficial to that company’s success over the years. I spent two weeks down there and got to experience the culture of that company and how they treated us as auditors, which is usually an adversarial?relationship, but also how they treated each other. They were honoring some of their retiring team members in a way that recognized their wealth. I was able to see that. I was able to see, here I was in a small community and there were people who had demonstrated?loyalty and had worked hard and were retiring as millionaires in the mid-2000 era.

That piqued my interest. The more I became exposed to other ESOPs as a CPA, the more affinity I grew for ESOP-owned companies—the way they conduct themselves, the way they plan with more of a longer-term lens and putting people first.? As I progressed in my career, I always said I enjoyed being a CPA, but I wanted to be part of an ownership culture myself. I was very fortunate?to find a well-respected and well-established mature ESOP in my hometown that I’ve been with now for 12 years. It’s been the perfect fit for me. As a mature ESOP, we have a workforce that understands this is core to our culture. ?

On a year after year basis, we’ve really benefited from the tax incentive of being a 100% ESOP-owned S Corporation. We’ve been able to accumulate cash and be successful year after year and we’ve been able to share the benefits of ownership with our workforce. We’ve been able to be acquisitive and expand the reach of company to other companies. We’ve acquired five companies in the past five years. All participate in the ESOP in the same way as we do here in the U.S. As we’ve grown outside the U.S, we’ve tried our best to model employee ownership to those who reside in Australia and the United Kingdom by providing benefits of ownership that run parallel to our formal U.S.-based ESOP plan. It’s been part of my career the whole time. I was fortunate it was part from the start and it’s become central to what I do.

What makes for a successful ESOP??

Communication is key. We have an effective?ESOP communications committee, and we have a robust committee training program, which we built with our administrator and trustee in the early days and have worked to enhance. We’ve made it more interactive. We’ve tried to make the ESOP more tangible to people throughout their employee life cycle. Our success is multiplied because the people believe in and appreciate that they get a share in the benefits of ownership. They have a good understanding of how the plan works and works for them. It’s been really positive to our retention, and it’s been really positive to our performance as a result. A lot of companies, pretty much every company, especially those that provide services like us, would say their primary?asset is their people. We actually demonstrate that by sharing the benefits of ownership with each person. ?Our people understand that. They understand that because of our communications efforts and how we made it feel tangible for them, that they’re part of something important and special, that the grass isn't greener elsewhere. The grass is green here. And they can play a part in making the grass even greener in the future. We have a really positive culture that’s very much a “we mentality” and is very focused on?employee ownership and how central it is to who we are and how we show up each day.

Can you give specific examples of what that communication looks like?

There's a?lot of things we do. Probably the most important thing we do, the biggest investment we make each year is we have an annual summit in which we bring all of our employees?together in our hometown in Iowa. It's a face to face, highly produced meeting. We have breakout sessions to help our employee owners grow personally and professionally. Then we have a celebration of ownership where our CEO and other business leaders provide updates on here’s how the past year went, here’s our initiatives for the year going forward. We do an experiential?stock price stock reveal that usually has a theme to it that people get excited about. We also have a shared recognition platform where team members can recognize one another. They recognize them in a way that is according to our core values. Act like owners is a major one. Authenticity is another one. We’ve done ownership videos where our employees speak in their own words and tell others what ownership means to them. A lot of our volunteer time off is centered around spending time with employee owners. For younger employees, we’ve worked hard to create some tangible benefits. When you become eligible to participate in the ESOP, which takes about a year, you get a first dollar in the ESOP and you get this ceremonial first dollar plaque with your hire date. It signifies you’re in the plan now, you’re now earning these funds in your retirement plan. Then every five years we have a pin, here’s a five-year pin, here’s a ten-year pin. The pins can be displayed on a vest. Everybody has the same black vest they receive once they’re vested in the plan and the money is real. Newly vested team members, there’s a day when we go around and distribute the vests with a card that says they’re vested. That’s done personally by me and our CEO. People like the direct contact with the CEO and CFO of the company. If you come to our office, our name plates don’t say our titles. My office says, “Tim Heaston, employee owner since 2012.” We also have an ESOP calculator where you can put in your variables and it will project out the value of your ESOP based on your unique salary, some assumption of stock growth and what your projected retirement date is. You can play with that. It’s a pretty interactive tool we’ve built. We probably do as much, if not more, as anybody from a communications standpoint. And I think the communication has helped drive the success of our plan and how people believe in it.

Rumor has it that annual stock price reveal is quite a show. Can you tell us about it??

When we announce our share price we always try to tap into some fun theme and write something unique. Because we have great event production capabilities, we’re able to pull it off in a bigger way. One year we did a theme that was bringing our companies together. We introduced each company like you’d hear at a basketball game. We used the Chicago Bulls theme music, the John Tesh song. Everybody had pompoms and we had spotlights and player intro cards describing each of our companies so people could understand what each company did and how each company performed. Our team members tore away their warmups to show the price on their jerseys, which was pretty cool. This year we did a fun Beetlejuice theme because we were around the excitement and nostalgia of a remake of a movie. We had a fun video that led to into a song and dance production featuring Beetlejuice using some of the Harry Belafonte music to ultimately reveal a price. We do some things that are pretty out there, but ultimately we’re trying to entertain people while we’re sharing good news with them. We’ve had 35 consecutive stock price increases so we’ve consistently had good news to share with people. So why not make it fun experience.?

Besides communication, what makes ESOPs successful, either from what you’ve seen at ITA or elsewhere?

There’s good camaraderie and networking among ESOP companies. Being able to lean on other ESOP companies and use them as resources. There’s a like-mindedness that plays into making your company better. You have this immediate network of companies that look out for one another, which I don't know that you have that in many other ownership structures, that you have this immediate network of companies that are somewhat selfless. I feel like we’re never competing; we’re?all supporting?one another. A number of us might serve on other ESOP boards. Our board of directors may have an external director from another ESOP company who understands the workings and enables us to share best practices.

The financial?benefits we share with?team members are significant. That has definitely helped us retain folks. We have a 97% annual retention rate. I'd cite the ESOP as the single most important?factor that is positively?contributing to our employee retention because it does create a special?culture and a place where people want to be. It is it's another factor to consider. Other employees in other companies when they’re thinking about potentially switching to another job, they don’t have anything as valuable as the ESOP sitting on the table as a consideration. For our team members, that applies to every role because everyone is an owner. The retention has made our company more successful and having consistent people makes the plan more successful, too.

You mentioned ITA is a mature ESOP. Can you talk about not having that debt on the books, what has that enabled you to do?

What we've done since the start, we’ve sought to maintain a fully-funded ESOP liability. With our tax savings and with our success?each year, we always set some of it aside and we established a separate investment company that’s also under common ownership. What that investment company does is preserve?value and manage the repurchase obligation. That enables us to not have to fund from current operations or have any question about keeping our promise to employee owners. Our value is preserved in that investment company. It also creates investment income that provides a little bit of benefit as well. Any excess cash over and above that we use to acquire companies that either expand our capabilities or make us more geographically diverse. Because of our good governance, our people’s investment in ITA Group Holdings is very safe, but it can be even more safe by broadening the companies that are part of our community of companies. Like any other diversification effort, it helps insulate us from difficult economic times. If we work well together, we can create synergistic growth and value as well. For us we have a large portion of our business tied to travel and events, well over 50% because it keeps growing even though it keeps growing in other ways too. We were hit directly by the pandemic, we saw significant revenue drop, I’m talking 70-80% of our revenue overnight and for a sustained period of time. Our competitors in this space of events and travel were laying off 80% of their workforce or furloughing 80% of their workforce. We retained everybody for a sustained period, probably six months. And then our layoff numbers were more like 10-20%. And we hired everybody back that we could within two years. We behaved differently because we had stability in the ESOP and we wanted to continue to have stability in the ESOP by retaining our people. We were always looking out five years and saying hey, what’s going to create the most value for us over a five year period and the answer for us was always keeping our people here so that when this thing subsides we can meet the demands that will be ahead of us at that time. We emerged from the pandemic as the most experienced staff, most trusted partner and I think our ESOP ownership is what made that possible.

What excites you about Expanding ESOPs and the possibility for more partial ESOPs.

You’re gaining immediate credibility?by tackling a couple of real hurdles that exist in current regulations. What you’ve done in a short amount of time is impressive. My hope is you get some early wins that enable you to do more in the future.

We have a large grocery store here—Hy Vee—which is maybe the best grocery store in the country. They have an element of ESOP ownership. They’re not 100% ESOP owned but they do have an element and market themselves as employee owned. If you can get to minority ownership that functions alongside your 401(k) and becomes available to everyone, that may feel less risky to everyone. Going all in at 100% can feel hard.

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