Yesterday Ross Video Stock Jumped 53%!!

*This article was originally published in 2018

YESTERDAY Ross Video stock JUMPED 53%!!

Huh? Ross Video's not a public company, what's that about?

Ross is a family and EMPLOYEE owned company.

We have something called an ESOP, an "Employee Stock Ownership Program".

Instead of an open stock market, we have what's called a MiniMarket once a year where we line up all of the buyers and sellers of Ross stock.

Our stock price is calculated on the annual audited financials. The company is valued internally according to a very simple formula: 0.8x top line revenue + 3x after tax profit, divided by the number of outstanding shares.

It's intentionally a great deal.

Someone once said it's best if an employee can calculate the value of their shares in the shower! :-)

If you've been at Ross for 6 months, you can buy a minimum of $500 up to a maximum of $500,000!

ONLY EMPLOYEES CAN BUY SHARES. (Please don't ask if you're not a Ross employee - the answer's no!).

The goal of the program is to give any employee a chance to enjoy the success of the company with liquidity.

- and for employees to care and act like owners.

I can tell you, this has been a HUGE success for our company and our customers!!

MORE DETAILS.

Due to popular demand, here's a bit more detail about the Ross ESOP plan:

Being a private company, I always hesitated to let employees buy in because I was very concerned about locking in their investment as we had no planned liquidity event into the future.

Around 2007 I went to a seminar hosted by ESOP Builders and learned that it was possible to have a cost effective stock market INSIDE the company.  This changed everything.

When I got into the details of how other companies were doing ESOPs though, I was somewhat dismayed by the structure.  They seemed to be oriented to bring money into the company to generate cash, and made it less desirable for the employees to cash in if they needed to put their kids through school or buy a house.  Only senior staff usually participated and the minimum buy ins were typically very high.  They were also very legal and intimidating.

We made heavy modifications, and rewrote all of the legal documents into plain English.  We also realized that if we wanted big investors inside the company to have liquidity, then we needed to have many small investors.  We dropped the minimum buy in to $500 so even the lowest paid employees could invest.

We then added what we called "the high water mark rule" to the MiniMarket.  This said that when we matched up the buyers and the sellers, the first "round" of sales would be the smallest share trade, then the next largest, etc.  So if one person is selling $500, everyone selling would sell $500 of their total amount to the buyers.  Then if the next person was selling $1500, they'd all sell the next $1000 together, etc.  This would clear out all of the low sellers first and not let any big sellers swamp the buyers.  Very fair and liquid to the little guys, guaranteeing that the small sellers would have liquidity, and the big ones would have a larger market.  It worked well, and might have been our biggest innovation.

A big value of the MiniMarket was for taxation.  If Ross buys shares from employees it triggers a "deemed dividend" and is taxed in Canada more highly than an arms length transaction to a third party.  Matching up unrelated buyers and sellers has a big tax advantage for the employees.

Ross gets a piece of the action as well. When an employee buys shares, they buy the first 25% from Ross treasury. This creates cash flow and makes it worthwhile for Ross to manage the plan.  The rest is sold from employees that want to sell to put their kids through college, etc.  If there's more demand than sellers, Ross then fulfills the demand from treasury.

So how much of Ross is actually owned by the employees?  Less than 10% as it's a big company and these aren't stock options, employees need to come up with the cash.  That said, there are hundreds of Ross employees that are "owners" and that's fantastic.  I think there's also hundreds of Ross employees that decided not to participate (we're fine with this) but may be kicking themselves!  No problem though, they can buy shares next year, and the year after, etc.

Hope this helps!!  David.