Two men who founded Kam Plastics a decade ago in Holland, Mich., have started to turn over ownership of the small automotive custom molder to the 120 people who work there, under an employee stock ownership plan announced June 28.
On that date, Kam employees bought 10 percent of the company from Paul Kalkman and Cleon Morgan. The plan is to turn over more of an ownership stake during the next 41/2 years, until employees own 51 percent, said Kam President Peter Prouty. Vested employees will earn company shares on an annual basis.
The Kam owners chose the ESOP after about two years of looking at options for succession. They picked employee ownership instead of selling the company.
``This really made the most sense - maintain local control,'' Prouty said. ``We've been successful in west Michigan and we wanted to remain part of the west Michigan community. It's a great way for employees to become more involved in the business and have a greater control over their future.''
Kalkman, 60, and Morgan, 68, will continue to be involved with the company during the ownership transition. The company's official name has been changed from Kam Industries LLC to Kam Plastics Corp.
Kalkman and Morgan, two former executives of Holland-based automotive mirror supplier Donnelly Corp., founded Kam in 1994. Prouty came over from Donnelly shortly after Kam got started.
Prouty, 41, will remain as one of the employee owners of the company.
``When these guys started the company, they didn't plan to shut it down in 10 years,'' Prouty said.
Kam generated $11.2 million in 2003 sales. Prouty said the company expects sales this year to reach $13 million. Kam runs 33 injection presses that turn out parts for automotive mirrors, window-crank knobs, armrests and insert-molded electrical components.
Conventional wisdom says that small-company ESOPs are more likely to succeed. But experts in employee ownership said that the key factor is not size, but the relationship of management to the workers. Employees have to believe they are really the owners - by making shop-floor decisions and getting access to financial information, they said.
``The idea is to educate the average employee-owner, about what it means to own the company,'' said Michael Keeling, president of the Washington-based ESOP Association. Kam is a member of the industry group.
Kam already has developed that type of relationship. Kalkman and Morgan wanted to give something back to the employees. ``They're saying, `You've done a great job in the past 10 years,'' Prouty said. The ESOP also should help retain employees, as their ownership builds each year, he said.
The company pays a profit-sharing bonus each month - instead of the traditional practice of quarterly or annually. Kam also shares month-end financial information, plus regular updates on quality and manufacturing data. Kam started a program to promote injury-free days.
``This is, in many ways, a kind of prototypical ESOP. It sounds like a good case for employee ownership,'' said John Logue, director of the Ohio Employee Ownership Center, based at Kent State University in Kent, Ohio.
Keeling said a company of any size can succeed as an ESOP. ``Many people who are on the fence about ESOPs say, yeah, where the company had good employee-employer relations to begin with, that's the company we want to see go ESOP,'' he said.
A close connection to employees was one reason Plastics News named Kam as a finalist for its 2003 Processor of the Year Award.
The OEOC and ESOP Association said there are about 11,000 ESOPs in the United States, many at closely held companies. Tax breaks, and the ability to keep a company intact, are the common motivation to move to employee ownership.