SOUTHAMPTON, Pa.—NewAge Industries Inc., which has manufactured plastic and rubber tubing, high purity single-use fluid transfer systems for the biopharmaceutical industry for 60 years, has been gaining attention recently because of its successful Employee Stock Ownership Plan.
The company, which has more than 100 employees, became partially employee-owned in 2006 after a few years of research and implementation of its ESOP.
CEO Ken Baker began to consider the option as a succession plan.
“He was looking to put a plan in place to protect the company for the future. ... He doesn't have family members who are interested in the company, in taking it over or being a part of it,” said Ann Phy, marketing coordinator at NewAge. “He didn't want to be in the position where he felt he would need to sell to a rival, so this was something he looked into for several years before he actually went ahead and did it.”
Baker still owns the majority of the company; employees started with 30-percent ownership in 2006, and that was boosted to 40 percent about a year and a half ago.
Phy said one of the reasons for the increase was because the company is growing, so it opened more shares.
“We really just started to get a few people that have retired,” she said. “And when they retire, their shares go back into the pot, more or less.”
How it works
The ESOP began with a 10-year plan that detailed how the shares would be distributed to employees.
Baker then sold 10 percent more of his shares, opening more opportunities for employee shares. Employees must be with the company for two years before they are vested at 20 percent. Phy said employees are fully vested after five years.
The company did the ESOP retroactively, meaning if employees were on staff for five years or more in 2006, they automatically were fully vested.
Employees had to take classes with Baker to learn how the ESOP would work so everyone understood the transition and the ESOP.
Employees do not put their own money in, Phy said. Instead, the ESOP is a trust, and it borrows money from the company for shares that it buys.
“And then as the company does well, it gets tax dividends for being an ESOP, that loan is repaid,” she added.
It is definitely a retirement benefit, but it also changes the mindset of all employees.
“It puts part of the responsibility for success on the employees. Everyone has a stake in how well the company does, so it's a different mindset. It's not just, "Here's my job I am going to,' “ Phy said. “There's more of a sense of providing for the future. Do things right. Do things well now. Treat the customer well now; they'll stick with us.”
Baker hosts quarterly meetings with the staff to discuss different sales opportunities, awards, new ideas and other items related to the company.
“There's a lot of recognition. I think that helps too,” Phy said. “Everyone here that has a business card, it has their job title, and then it says slash owner because everyone owns a little piece of the company.”
This sparks conversation, Phy said, and allows everyone to explain the program.
The ESOP program has been drawing attention from local, state and federal officials, including representatives from the Southampton area and the Philadelphia region, as well as from Pennsylvania State Sen. Stewart Greenleaf and most recently, U.S. Rep. Mike Fitzpatrick.
“Ken Baker is proactive with that. He's on some committees that promote ESOPs,” Phy said.
“He's been to Washington a couple of times. He's not just ... sitting back waiting for somebody to contact him to see how it's going. He proactively gets his name out there and the company name and tries to make NewAge an example on how well it's working.”
Fitzpatrick, who serves Pennsylvania's 8th congressional district in the southeastern part of the state, wanted to hear how the ESOP company works directly from its employee-owners. He participated in a town hall-style meeting to discuss the benefits of an ESOP.
“Retirement security is a big issue,” Fitzpatrick said during his visit. “We're living longer, and health care is getting more expensive. If you're trying to retire on Social Security alone, it's going to be difficult. Very few companies offer pensions today, and that's another reason why ESOPs are an important option,” he said.
Jeff Johnson, director of software solutions and a 23-year employee, told Fitzpatrick that the ESOP has given NewAge's employees a new view on retirement.
“Many of us have talked about how the balances in our ESOP retirement accounts have outpaced our 401(k)s. And the 401(k) plan has been around for over 20 years. The ESOP is only 8 years old.”
NewAge's employee-owners believe ESOP retirement plans can be a good option for Pennsylvania businesses, the company said. When previously employed at other companies, some current NewAge team members experienced the sale and subsequent dissolution of those companies. Other current employee-owners worked with companies where the owners were aging, and there's concern that leadership teams of those companies simply haven't considered an ESOP as a viable business transition.
“The owners of many small companies are unaware that they have this opportunity to receive money from the sale of their company while keeping the company intact,” said Cathy Wallace, New Age's director of purchasing and materials. She has been with the company for 25 years.
She noted if an owner wants to sell his company to a competitor, venture capitalist or multinational firm, that could put the company's employees and American jobs at risk.
“The best way to take care of a company's employees during a sale is to make sure the employees themselves own the business, not somebody else,” Fitzpatrick said. “There's a real opportunity to use NewAge as an example and say, "Look how well it's working, and it can work for you, too.' Let's make it easier for ESOPs to be created and beneficial to transition ownership to employees.”
NewAge Industries announced earlier this year it acquired 40,000 square feet of additional space to expand its manufacturing capacity at its Southampton facility.
The company initially wanted to have the new space operational by the end of 2014, but Phy said that is unlikely to happen as the space currently is being used for storage.