California's Top CEOs - George Tillery, A- Z Bus
A - Z Bus Provides Stable Future for Employees
George converted to an ESOP (Employee Stock Ownership Plan) in 2000, as a means to transfer ownership and responsibility of his successful bus sales business. The ESOP plan engages his employees, spread his risk and minimizes the firm’s dependence on him. Headquartered in Colton, the 40-year-old firm sells and distributes fire trucks, emission control devices, and buses in California, Arizona, and Hawaii. Employee-owned companies are statistically more profitable, compared to similar public or privately-owned companies, and employee-owners have a higher level of care for the company. George has seen the A-Z ESOP provide employee stability because the employees are now owners and engaged in making sure that our customers are satisfied. Additionally, many employees helped build the business, so the ESOP program provides retirement security. Seeking Guidance Most business Founders transition from being specialists to generalists, as the company grows. The development of an ESOP program must include research and counsel from experts. “In my experience, the benefit of paying for expertise and outside help has far outweighed the investment of time and money. ESOP transactions are complicated and require specialists to plan, document and guide the process.” Operational Benefits Company owners must think about what it takes to sustain and grow a business. Costs need to be controlled, margins need to be maintained or increased, and customers need to be satisfied. It is best practice to have frontline employees focused on taking care of the customer while caring for the company, and an ESOP increases this motivation. Company values reinforce that when they are taking care of customer needs, they are serving God, and that can be very rewarding. Challenges do exist in providing an ESOP program to employees. “Educating front-line staff, that may live from paycheck to paycheck; that there is no cost to them, and that they will ultimately benefit greatly-took time.” “I believe people want to do a good job and leave at the end of the day feeling good about themselves and the work they do.” George’s opinion has been validated by independent studies, which show that it’s not their pay as much as their sense of responsibility for their role; appreciation for what they do; freedom to do their work in the way it makes sense for them and the company, that motivates employees. A-Z now has many employees with six-figure share values, which will be a substantial supplement to their retirement. For those who have been employed since the beginning of the ESOP, their shares are the largest element of their retirement plan, many exceeding the value of their home. Financial Benefits Properly structured, an ESOP allows the selling shareholder to transfer ownership of the company to the employees, and replace that value with publicly traded stocks or bonds on a tax-deferred basis. You can then gift the replacement property to a charity, take the tax deduction of the gift, and not incur a taxable gain. Instead of giving away assets on death, you can do your giving while living and know where they will be used. Financial Challenges ESOP may not be a good option for small business that is marginally profitable, or when an owner wants a quick exit. Additionally, be aware that the Employee Retirement Income Security Act of 1974 (ERISA) compliance requirements are stringent, somewhat expensive, and will be ongoing. The planning process takes time, but eventually a big win for all stakeholders and shareholders. Succession Planning Planning for an owner’s departure is a big responsibility, and “we owe it to our investors and employees to relinquish our egos and pass the baton to the next leadership team.” One of the most difficult challenges George faced eleven years ago, was backing away from daily operations and letting a new president run the company. “He did not want me looking over his shoulder, and I did not want him making decisions without me. By God’s grace, we were able to work through this, and it was a win-win all the way around,” he said. Company Growth Probably one of the biggest challenges for a company founder is to overcome the thinking that we are indispensable or the only person who can run the company properly. George believes that owners are not indispensable and that they need to plan for their departures in a meaningful way that permits the organization to thrive in their absence. “If we don’t plan forward we are being irresponsible to ourselves, the company and the employees.” Hiring consultants can help make this process go smoothly. George’s exit plan, including the ESOP, was a three-step process that took years, but essential to the long-term success of A-Z Bus Sales. Step one: Separating his identity from his career (He noted this seems to be a challenge for many men. “As men we tend to internalize our identity to be “who we are is what we do.”) Step two: Separating his self-worth from his net worth (The entrepreneurial spirit) Step three: Understanding A-Z was an asset he managed, but belongs to God. (It was his to manage, care for, and transfers to the next generation of owners) Final Thoughts “It may be difficult for some owners to give up company control because we are ultimately responsible for commitments to banks, vendors and others who have a stake in the business. I believe giving up that control, however, is consistent with God’s plan for the business.” Read the full article