Over the last few years, a new trend has started to build momentum in the Valley’s construction industry. Firms such as CHASSE Building Team, Suntec Concrete and DP Electric have recently transitioned to employee stock ownership plans (ESOPs), providing a rich benefit for employees to profit from the employee-owned businesses.
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George Thacker, managing director of CSG Partners, says that through an ESOP, employees are allocated stock based on their percentage of the overall payroll.
“If you were 10% of the employee base, and I were 5%, you would get twice as much stock as I would,” he explains.
This is done in addition to standard compensation and retirement benefits, so the longer someone stays at the company, the more stock that person will accrue. Thacker notes that it’s common for employees’ ESOP balances to be larger than their 401k accounts when they start looking to retire. Upon retirement, an employee can roll over the value of their stock into a rollover IRA and defer paying taxes on it, making it “a tremendous benefit where the longer you’re working at that company, the more meaningful it is,” he says.
Transitioning to employee-owned businesses
ESOP plans are also a great option for owners who are contemplating stepping back from the company. In the construction industry, internal buyouts have been historically popular, but Thacker says that route has drawbacks.
“The problem is that the company is generating all this taxable income,” he says. “You have to make tax distributions, then you’re using after tax distributions to pay out [the owner], who then has to pay taxes again. Internal buyouts hemorrhage cashflow from a tax standpoint.”
Other options to employee-owned businesses, such as an outside acquisition, can lead to layoffs and a dramatic break from how the previous owner operated the company.
“As one client put it, ESOPs allow for a soft landing,” Thacker explains. “[The owner] has oftentimes built up the business and it has their name on the building. With an ESOP, most of the time selling owners stay involved in the business for a period of time.”
Transitioning to employee-owned businesses, Thacker continues, also provides liquidity and diversification, along with potentially turning the business into a tax-free entity.
“It’s an alignment of interests between the management team, the company and employees,” he says. “Everyone is rowing in the same direction.”
DP Electric
In February, DP Electric announced that it achieved 100% employee ownership, fully transitioning to an ESOP. Danielle Puente, president of DP Electric, notes that the process started for the company back in 2021 when Dan Puente, founder and CEO of DP Electric, sold 30% of his shares to the ESOP.
“Prior to that decision, Dan and myself had a lot of conversations with different experts on succession planning,” she says. “For Dan, it was always the goal of his to go the ESOP route. We’re huge on our culture and everyone having have an ownership mentality and having an impact on [the company’s] future.”
Then, in 2024, DP Electric completed the transition to a 100% employee owned, meaning Dan Puente is no longer the majority shareholder, but Danielle Puente notes “he couldn’t be happier that the business is now owned by all our employee owners.”
“It’s making our culture even stronger,” she continues. “With other types of exits, sometimes that culture doesn’t stay the same, and that was really important to Dan and I.”
For DP Electric, employees must be with the company for one year to be eligible for the ESOP plan, and is vested over five years. Each year, Danielle Puente explains, the ESOP is funded by the business and that contribution is converted into a bucket of shares allocated to employees based off compensation.
“Someone that’s earning more and has more responsibility will receive slightly more shares than someone who is closer to entry-level,” she says. “It’s completely free to our employees — they don’t have to buy in. And we still do a 401k with matching, so we didn’t adjust any of our existing benefits. This is just an extra retirement benefit for them.”
Employee-owned businesses also receive a valuation every year and a new share price is announced to reflect the performance of the company, meaning there are two levers to build value for employees — the number of shares received annually and the increase in the value of those shares.
“We have been growing significantly,” Danielle Puente says. “From a volume standpoint, we’ve been growing about 40% for the last three years. That equates to having share prices having large growth too. That’s a big thing to celebrate for our employees because when you’re in those growth spurts, it can be stressful and demanding. But ultimately, they’re getting the benefit of the business growing and seeing that reflected in their ESOP account.”
CHASSE Building Team
Barry Chasse, owner of CHASSE Building Team, first looked at the ESOP model for the company back in 2015, but it wasn’t until he worked with CSG Partners in 2021 that he decided to take the business in that direction. He saw it as a huge win-win for employees and the long-term sustainability of ownership.
“I was the majority shareholder, and sometimes people might wonder, ‘What happens if Barry retires? Will he sell the company to some giant company that’s going to ruin our culture?’” Chasse recalls. “Maintaining the ability to run the business the way we want is really important to us. So that was the most compelling reason to go with an ESOP versus any other type of ownership structure.”
Communicating the benefits of the ESOP plan to employees can be a challenge, Chasse says, since it takes a few years for them to see the growth of the company reflected in their accounts.
“It takes a while for people to start seeing the accumulation and stock price increases,” he continues. “My finance team tries to help them by modeling some what-if scenarios based on if the company continues to do well and what that could mean for employees. That helps people start to go, ‘I get it, this makes more sense,’ because [ESOP plans] can be quite complicated.”
There can also be some misconceptions about what the transition means for the management structure. For owners, there is a fear that they will lose control of their company — something that concerned Chasse before the process was better explained to him.
“Some people think that when you do an ESOP, that means anyone can make any decision they want like they’re the owner of the company,” Chasse explains. “That’s not the case. You still have your organizational structure there. It’s not like employees are voting on whether we should have tacos or barbecue on Tuesdays. You still have full control of the company as the founder, but your employees are going to own it in the long term.”
Suntec Concrete
In March, Suntec Concrete became the second-largest Arizona-based employee-owned company when it announced its transition to an ESOP. For Derek Wright, president and CEO of Suntec Concrete, a third-party sale or involving private equity for transition planning were avoided because those structures didn’t align with the company’s values.
“We’ve always said, ‘together we can do amazing things,’ not ‘everybody just do what I tell you,’” Wright says. “It’s always been about doing more than expected, and as an employer, giving more than what’s required. So [an ESOP] fits well for us culturally.”
Wright adds that choosing to go this route has been the culmination of 25 years of succession planning, and not chasing after the “cool new shiny object.” An ESOP was just one of the many options that the company considered and had elected not to go this route in previously, but as Suntec Concrete continued to grow and have success, “it was the next evolution of what we needed to do for our company.”
Since the announcement, Wright says the company is meeting with all 2,000 Suntec Concrete employees to explain the details of the ESOP to them, along with sending out printed materials and emails about the plan. Because of the complexity involved, Wright notes that it will be a continual education process for employees, especially that the plan is an additional benefit and not a replacement for what is already offered.
“Ultimately, it comes down to this,” Wright concludes. “The substantial majority of our leadership grew up in this business, starting in an entry-level position and growing from there — including myself. What better way to culturally alight your company for the future than to share the successes that we enjoyed with all of them?”
