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Episode with guests: Tom DeSimone and Hillary Hughes
Directors at Prairie Capital Advisors
(This episode was recorded in June of 2021.)
Key Episode Take-Aways:
1. Attracting talent with a workforce placing more of a focus on instant gratification. (click to jump to this topic below) ...and certainly, there's a lot more focus on kind of instant gratification, right, versus the long term rewards and I've heard through the community a bit about this idea of changing the conversation from, you know, a retirement plan, future retirement plan to more of that wealth creation, that I talked a little bit about earlier. And I'm just curious if you could talk to that of how is how is the how is it best to, to, to position this idea employee ownership for that new generation to retain and attract when people are just so much focused on that instant gratification? Hilary? Tom?
2. Set stretch goals that are achievable that your team can believe in. (click to jump to this topic below) But the intent really, from the beginning was that it would provide employees with an opportunity to be invested in their employer stock and to grow wealth over time. So it is looked at as as kind of a retirement nest egg. But if you think of wealth creation, like any time, you're seeking to build wealth, it's kind of in fine, not an instant gratification.
3. Understanding the power of the multiple. (click to jump to this topic below) But I think the essence of it is, what we're trying to share with folks is he said a number of years ago, he was given an opportunity to take $5,000 in stock to take an options to take $2,500 in cash $2,500 In options or $5000 in cash. And he decided to take the 50/50 Right? And the $2,500 he spent on a projection TV, right think about those in the 90s. You know what I'm saying? And he's like today, so 10 years later, when the options have to be exercised the projection TV I think he even said he had to pay someone to haul it to the dump, because it was so big and heavy, right? He's totally forgotten all of that stuff. And the $2,500 is worth something like 70 grand, you know, it's like, how can we teach people that what you want today isn't necessarily what you really want. If you can truly understand the power of the multiple.
Continue scrolling to read the full episode transcription.
Steve Baker 00:00
We lcome to the Change the Game Podcast, where we share stories of open-book management and highlight capitalism at its best. Here's your hosts, Rich Armstrong and Steve Baker. Welcome to the Change the Game Podcast where we are changing the game by doing business differently, and highlighting stories of capitalism at its best. I'm Steve Baker with The Great Game of Business. And this is Rich Armstrong, head coach and co author of our new book, Get in the Game, How to Create Rapid Financial Results, and Lasting Cultural Change. Hello, Rich.
Rich Armstrong 00:34
Hi, Steve, how are you today?
Steve Baker 00:36
I'm great. Actually, I'm really excited about the subject matter today because it's about employee ownership. And, you know, I came to it late in life. I actually was thinking about it, I got my first ESOP certificate when I was 42 years old. Now, you, on the other hand, have got this in your DNA you grew up at SRC, you have employee ownership in your blood, what is the biggest impact you think that employee ownership makes? Not just on a business, but on the people? On the employees?
Rich Armstrong 01:07
Well, I, you know, I think I think for the employee, it's the opportunity to build wealth over time, right, the opportunity to participate in improving you know, the value of the business, we always talk about it SRC, and just in terms of the idea of controlling your own destiny, and I always felt that about SRC is that the opportunities were always there the opportunity for everyone to find a way to improve their quality of life. And the employee ownership was a big part of that, because it was about creating wealth versus just making a wage every day, right? Building, building a future for yourself. But I do think SRC took a little bit different approach, then some employee ownership companies do. And I wished more would do it do it this way is that what I what I experienced coming in, you know, very quickly at SRC, it was a lot less about talking about employee ownership and how the ESOP works, and more about just focusing on teaching everybody how the business worked, right? How we made money, that was the first priority is just get everybody to really understand how they can contribute to the success of the business. And I think it stems from that central belief that, you know, the, if we want people to think and act and really feel like owners that we got to first treat them like owners and, you know, involve them in the business and teach them the business. And, you know, and probably most importantly, is to get, you know, find that connection of showing them how they can really make a true difference in the business. So then when we become successful, and we see the stake in the outcome and the employee ownership continue to grow, that we have a connection to that, that we were the ones that actually built that wealth and created that wealth through employee ownership. And we know exactly what we did to make that happen. So it becomes sustainable. I think that's just been always a key to me is that that probably was my first love is just the fact that they included me in the business. But then I get this awesome, you know, and wealth building opportunity with it with the employee ownership.
Steve Baker 03:12
Yeah, opportunity. I like that word a lot. I especially like what you said about if you want people to think and act of feel like owners, you got to treat them like owners, which means you got to teach them the business. And that is a powerful thought. Well, I sure wish I would have found it earlier, but it still does not negate my excitement. For today's guests. We are super lucky to have two not one but two special guests today, two directors of prairie capital, a longtime friend and partner of the Great Game, we've got Hilary Hughes and Tom De Simone here. They both been with Prairie since 2011, and are both shareholders in the firm. Now Hilary provides strategic insights to assist business owners and boards of directors to address long term ownership transition goals. That's a really big hot topic today, of course, because everybody's in transition or denial. Hillary has been highly involved in ESOP valuation and transaction analysis on behalf of both ESOP trustees as well as the business owners. So there's both sides of an equation there and Hillary has significant experience in issuing what they call fairness and adequate consideration opinions required in ESOP transaction. So she's seen all sides of it inside and out. Now, Tom, of course, has extensive experience in advising mid market companies on ESOP transactions, and he's representing both companies and ESOP trustees as well. Plus the M&A side, mergers and acquisitions, financial opinions, corporate valuation, and other investment banking advisory services. What kind of qualification ... Why are you even here? Welcome to the podcast. Wow.
Tom DeSimone 04:56
We're excited to be here.
Steve Baker 04:58
Well, you guys had been Uh, like I said earlier, just longtime friends and partners of The Game and you're consistently recognized organizationally, for your contributions to the ESOP and the M&A fields. There are going to be listeners that are not familiar with your organization, could you please share kind of what types of services you offer to clients and Hillary, I'll start with you.
Hillary Hughes 05:23
Sure. So at Prairie, we really are focused on the ownership transition advisory, which really boils down to education coming along side business owners and helping them understand really what their options are, but also how they can take steps to really achieve their objectives. Whether that's keeping it within the management team or family or selling to a third party or transferring to an ESOP. Education is really important to us. And so whether that's someone who's considering an ESOP, or M&A advisory, management, buyout, or even family transfer, and that the gift and estate tax planning side of it, we can help advise with that, as well.
Steve Baker 06:09
So it's far more than just ESOP as well. And, Tom, anything to add?
Tom DeSimone 06:14
I would just say, Steve, you know, we we, we really believe in the ESOP ownership. Part of the conversation, you know, we are an ESOP ourselves, Prairie is 60% about, ESOP owned, we started that piece of our puzzle about 10 years ago. Ownership transition, it takes so many different forms, and and each form doesn't fit everybody the same. Some people come to us and want really like the ESOP idea, and we tell them, "No, it's not going to work based on your objectives," and vice versa. So what what Hilary and I like to educate about is, there's tons of options and like anything else in life, the more you plan, and the more you prepare for it, the more options you have.
Steve Baker 06:56
Yeah, and options are everything, right?
Tom DeSimone 07:00
Absolutely.
Rich Armstrong 07:02
Well, guys, this is a topic of employee ownership. It's a big topic, pretty complex topic, you always, you know, you hear a lot about the technical side of ESOPs and employee ownership and, and maybe not as much about the cultural side, the human side of it, and I thought maybe today, we could talk a bit more about that. And the reason is specifically this idea that, you know, we're in a, you know, a talent war, right, we're trying to find and attract and retain employees. And, and certainly, there's a lot more focus on kind of instant gratification, right, versus the long term rewards and I've heard through the community a bit about this idea of changing the conversation from, you know, a retirement plan, future retirement plan to more of that wealth creation, that I talked a little bit about earlier. And I'm just curious if you could talk to that of how is how is the how is it best to, to, to position this idea employee ownership for that new generation to retain and attract when people are just so much focused on that instant gratification? Hilary? Tom?
Hillary Hughes 08:10
Great, great question, Rich, I think it's a good place to lead off on the conversation around ESOP, as wealth creation really harkens back to why they were created in the first place. So back in 1974, there had been a lot of congressional legislation really leading up with ERISA, but part of the conversation was recognizing that a lot of you know, there has been a group of people who have benefited in wealth creation of owning businesses. But as these businesses are growing larger, even back in 1974, they were seeing that many employees and would be entrepreneurs or owners were were kind of locked out. They weren't having that opportunity to participate in the wealth creation and wealth transfer, which is really why they set out to create ESOPs, employee stock ownership plans. So they created the basis of it is like a 401 K retirement plan. But the intent really, from the beginning was that it would provide employees with an opportunity to be invested in their employer stock and to grow wealth over time. So it is looked at as as kind of a retirement nest egg. But if you think of wealth creation, like any time, you're seeking to build wealth, it's kind of in fine, not an instant gratification. Usually there is an investment period or a building period that you have to be in to really recognize the growth and asset value. But then also strategically of when you decide to liquidate that or transfer it in reinvest it into other wealth, which is more than retirement at that point. So it's just interesting to see ESOPs come back to be used that way, as a wealth creation tool. If I could add Rich, just a couple of comments, you know, I think the part of the reason ESOPs are coming back as this wealth creation versus, hey, let's put in the ESOP for retirement planning is we're in a period of time right now we're finding and retaining people as a significant challenge. And the workforce that many are going after today, particularly new individuals to the workforce, or perhaps folks coming out of high school or college, jumping into the job market, there's a immediate need for cash in your pocket there. There's student loans and all types of other family or individual costs that you have to take care of. And so the term retirement in conjunction with these these issues, financial issues don't don't go together well. And so folks are trying to repurpose this idea, exactly, as Hillary outlined that an ESOP is it's not a get rich, quick plan. But it's something that you can get involved with that is going to generate wealth over a longer period of time, so that you don't have to worry about those financial things later on in your lifetime. And so it's really just trying to bridge this gap of, of, it's not an immediate pay. Well, that's all get that out front. And then the open. However, it is an opportunity to do something that most people in their lifetime don't get to do. And that's have an equity, economic equity interest over a over a period of your life.
Rich Armstrong 11:31
I think it's a great message. I love how both of you and Tom and Hillary you. preference, I wish more of our human resource people could have that message, right. I think too many of them sometime, maybe start with more of the Hey, we got a retirement plan. And here's what the ESOP is all about. And I just love that you guys position that because I think it would resonate a little bit more with with with this new generation.
Steve Baker 11:57
Yeah...
Hillary Hughes 11:57
So you guys are standing in kind of the basis that, you know, the 401 K, usually there's an component where they're deferring their pay into it to potentially receive a match, and really be able to communicate upfront, this is a different wealth tool that, really, if you're here, and you're continuing to be here, you're getting an allocation. And that is so powerful. But I think so many times they look at it and say, Well, if I didn't, you know, I must be giving up something for this, which the plan is designed very much in the nature that they don't, it's really just the company contributing toward towards them.
Steve Baker 12:37
Yeah, which is like black magic, you know, because everything that we see in TV and movies, I'm just telling you guys keep talking about wealth creation. And even though we shift the vocabulary from retirement to wealth creation, which is a really valid thing, and very powerful. We have to remember that people come to us and there is no good information in their heads about wealth creation, it sounds like, you know, well, if I can't, you know, buy into bitcoin when it's low. And you know, I mean, it's just so crazy out there. And my own kids before the podcast, rich, Hillary and I were talking about my youngest just called up while I was doing another workshop, and he's like, going, Okay, I need your help on this 401k thing, because I just passed my probationary period. And I've just got, I just said, No, I said, No, say, Yes, we went back and forth record. And I'm like, No, you don't understand. And we didn't have time to get into it. But what I'm trying to say is, there is a lot of stuff around here that takes a ton of education. And I was wondering if you guys could maybe address? How do you? You know, first of all, talk about the power of the multiple? And secondly, do you have ideas or case studies, you know, stories from the field, where people have done a really good job of creating education or communication programs around it, because we've got to start from scratch.
Tom DeSimone 13:56
Yeah, that, you know, Rich the power of the multiple is a very important aspect of, of what we're talking about your wealth, wealth generation. And in its simplest form, I like to think about the power of the multiple one as being a valuation discussion. So as an economic owner, in the business, you're earning value as that business grows, and overall business value, right? So in the business world, everything transact on valuation in terms of a multiple, so if you are selling your business or you have a stake in your business, someone might tell you, it's worth five times earnings. That means for every dollar of earnings you make, someone will pay you $5 for it. So, the power of the multiple is somewhat of a strange analogy. So for people that never have understood how business economics work. We we spend so much time talking to people about how to be more efficient, how to be more productive instead of nine widgets Let make 10 widgets within 60 minutes. And the failure is, why are we telling people to do that? We're asking them to save $1, because it's worth $5 to the firm. And the ESOP has a share and that value, you're effectively multiplying your value by five times, if I can get $1 to you in the plan and the ESOP plan, and we can be valued at five times that dollar, how much more powerful is the ESOP benefit. And that's, that's really what we're trying what we're trying to teach this, this description doesn't even take into consideration the compounding effect of that, if you save $1, this year, everything I just told you happens next year, you save another dollar, and now you have $2, saved up five times multiple. And so the story goes on and on. But nonetheless, the power of the multiple creates so much value. But we do have a we do have a gap, we do have a gap between the definition of what we're speaking about here versus the understanding of what we're trying to get across the table. And, and Hilary, you could share, share your thoughts, please. But my view of this is it starts to get into culture. Are we teaching our employees financial literacy? Are they understanding general financial terms that resonate with valuation? So does someone know what net income is? As simple as that you and I talk financials all the time, we might understand net income, but you bring somebody in that's that's working out on a on a production floor that never looks at financials, but they are an expert at producing widgets, they may not really understand what you need mean, when you're talking about net income, and making a simple example. So part of understanding the power of the multiple is just financial education, in general, what drives our business value, put some dollars and cents to it. And frankly, share some numbers, you guys at the Great Game are experts at this, share some numbers share some information so people can connect their behaviors to the dollar example. If I if I act like this, or change my behavior in such a way that I can save $1 This is what it means. Trying to build that build that connection is is incredibly important. And my last example, which I think is the easiest one, in my opinion, is if we sit here as a firm and say that our budget, our goal for the years to produce a million dollars, and we produce 900,000. Don't you think it'd be beneficial to show everybody that we fell 100,000 short? And here's the reasons why. And here's how we can fix it. It's all in our power. Here's how we could fix it. And the Vice versus what if we were at 1.1 million versus our budget, don't you sit think we could show people we beat it by 100 grand, here's the value generate an ESOP. pat on the back, you know, everyone celebrates and now you get to see such thing that shows us it's rapidly increasing value. So just showing people a little bit of information can go a long way.
Steve Baker 14:55
Exactly. Yeah, love it.
Hillary Hughes 18:08
And I think that, really that understanding the multiple, in the why it's important. And really then attaching the why of how they can touch and affect net income, profit, whatever that measure is. Because as Tom said, like, depending on where they where they set, or where they stand in the company, they can see seems so far away. But everyone is really driving together. It's just then understanding how are they influencing it, and making it more personal of what what are positive actions or what are detractor actions from achieving that goal.
Steve Baker 18:47
I love that connection to education. Rich, and I know a guy, super cool guy that told us a story. I may not tell it right. But I think the essence of it is, what we're trying to share with folks is he said a number of years ago, he was given an opportunity to take $5,000 in stock to take an options to take $2,500 in cash $2,500 In options or $5000 in cash. And he decided to take the 50/50 Right? And the $2,500 he spent on a projection TV, right think about those in the 90s. You know what I'm saying? And he's like today, so 10 years later, when the options have to be exercised the projection TV I think he even said he had to pay someone to haul it to the dump, because it was so big and heavy, right? He's totally forgotten all of that stuff. And the $2,500 is worth something like 70 grand, you know, it's like, how can we teach people that what you want today isn't necessarily what you really want. If you can truly understand the power of the multiple. That would be something, so let's stay on the human side of things for a second because that's my favorite. aside, we have seen and I think that people like and NCEO have studied this. We know that people get into employee ownership for different reasons. Some people will go ESOP, for tax benefit or for a cash out, some other people do it because they really want to take their people to the next level. We know that the highest performing employee on companies often have that cultural side, Tom, as you said, a purpose driven culture is purpose, something that we connect to, or use a tool and help closing the gap between the folks that aren't understanding what we're trying to do and the folks who do and final summary that results, if that makes sense. Yeah, I definitely think purpose can be used as that tool. And it's really helping them understand the why behind what's important, but also just really the purpose of the organization of the whole. Who are you serving? What are the organization's goals? Do you have influence? And really, you know, are your values aligned with that purpose of Who are your Who are you serving, that always swings really high from an employee engagement standpoint, whether you're ESOP or not ESOP employees tend to be more engaged and also promoters, if they feel that the the entity has a lot of purpose, and that they can influence and positively impact that purpose, I think in thinking about like employee ownership, and how some companies have heard, harnessed it really well, really having that clear purpose, but then transparency, and I think this really falls in line of what you teach at The Game. And I'm sure many of your companies can testify to it, even in the non ESOP sense of just that power of transparency, but also that controlling your own destiny, understanding what's our goal and what we can do to get there. It's certainly in the ESOP sense as owners, whether partial or full, you're going to benefit from good goal setting and transparency that can help you be accountable as you strive to reach that goal. Love it, I'm kind of you're inspiring me to think about you can almost use purpose as an early adoption thing, you know, people will hook onto purpose before they might fully understand the mechanics of employee ownership and the power of the multiple. So while it's a great thing, it can also be that tool, as you mentioned, I think that's interesting. Tom, did you have anything to add?
Tom DeSimone 22:33
Um, you know, I do I fully agree. And I think that if you look at a lot of Business's mission statements, or perhaps their core values, purpose seems to be a very popular, popular word, but I challenge people to think about what the word purpose on the back of their business card really means. And does everybody does everybody understand that? You know, I think businesses have a purpose, you know, their, their purpose tends to be financial in nature. You hear public companies talk about their their mission to generate a return to stakeholders. I think, privately, privately owned companies, and particularly employee owned companies. Purpose takes on a little bit different of an attitude, you know, you you almost have this community purpose.
Steve Baker 23:25
There you go.
Tom DeSimone 23:26
And I think that, that, talking about this word, purpose, I just start to think about how many different variations of the definition purpose could have everybody talks about it. But I think it'd be ingrained in into your business of what is our real purpose here. The financial pieces will come from it, the returns will come from that, but maybe a different viewpoint of the word purpose could go a long way. Nice.
Rich Armstrong 23:53
Yeah, absolutely. I know that it's interesting. SRC, over the years is, you know, had a pretty clear purpose about improving the quality of life of, of our employees, no matter what that quality of life looks like, to the employees. And a lot of our business units have, you know, since we've grown, we have the entrepreneurial units, and they're building their own purpose. And so they wanted to their own kind of purpose and why they could share with their employees. And because of that employee ownership culture, they just run so thick between our company it all centered right back to the alive, so it was like, they wanted to, you know, find that that differentiation for their business, but at all to your point Tom had always had you know, this that, you know, community kind of, it's more about how can we all improve the level of quality of life across the entire organization? So I'm currently this this will help me as a coach. I'm currently working with an early stage ESOP and they are less than three years into it and they're struggling a little bit of making that connection to the employee ownership, primarily because people are getting statements that don't really add up too much yet. And it takes a while for that to see. And they kind of have that attitude. Well, there's nothing really we can do. Until that happens until they see that there's growth in their statement. And I know that from you know, our relationship and what we do at Great Game, we we don't necessarily believe in that. And I just wanted to kind of talk a little bit about that, because it goes back to what we talked about earlier is how do you hook those employees early? Right, because now they're looking for the instant gratification? Can we talk a little bit more about different ways you've seen companies make that connection in early stage ESOPs, to get them excited about it before they actually see their statement? You know, show the value increase?
Tom DeSimone 25:52
Yeah, I think that this is a this is a very typical challenge, particularly with with ESOP owned, owned companies where they say, I like the ESOP because the ESOP can help me attract and retain individuals, but then they become an ESOP. And then they start to realize, hey, look, there's still two to three years before the statements start to materialize. And people see how much financial value the ESOP is, is creating. So keeping an eye in this in the context of an ESOP loan company, the question is, is what do we do for that 2,3,4 years before statements really start to show the power of what we're doing here. And I think this, Rich, comes down to what we've been talking about, you know, the, there's so much more than the financial piece of all this, that that makes ESOPs powerful. It's the the employee ownership culture, the business mind, or the employee owner mind, that starts to create a lot of value. But that takes work that takes a lot of effort, you just don't snap your fingers. And it's there. One of the companies that we work with when they had been doing this for a long time, but they they said that this really cured this issue of waiting three or so years for the statements. They had, you know, when you see a fundraiser out on, you're driving down the street in your town, and there's a thermometer outside and the shows like at 150 degrees, that thermometer blows up, and you get hit there your goal, your fundraising goal, they had that thermometer in their front lobby. And what's at the top of the thermometer was there five, five year revenue or sales sales goal. And what they said was, if we can hit our five year sales goal, we will take the entire company on a weekend all inclusive vacation. There's a 30 employees at this company. They placed it in the front door, because no matter what you did, every single employee saw the thermometer on their way, and there's no way to avoid it. And they figured, well, if we can hit our five year goal, we're keeping to our strategic plan. And we're generating value with an ESOP just like we set out to. But maybe this is a way just to tie people into seeing the value of that incentive and understanding, hey, if I just do my job and work harder, and we can hit, we can see that thermometer going up and up and up. Well, they hit that in the first year they did it, they hit the goal in three years. So their their immediate reaction was, well, the thermometer wasn't tall enough, we need more, more revenue goals. But they've been averaging. So this is this is their third, they've done three trips, and they've been averaging three year hits on their goal. Now think about what this has done to the sap that this, this thermometer was put there without intention of what the ESOP is going to do is going to try to cure this three year gap. By hitting their goal every three years, the ESOP is blowing up in value because they're generating all this value. So, you know, I share this example, because there's, there's a million examples of what you can do to try to move people into value creation without even thinking about the ESOP. But it all comes down back to what we're saying purpose and culture and trying to get people to understand the value that they bring to the table. It's not just the job, you're coming there with, with a ability to make a change in the overall value of the organization and getting people to connect with that is key.
Hillary Hughes 29:18
I think that's such a great story. I wish we could all go on vacations like that. But you know, one thing to also just consider is it. This is Yes, as a new ESOP, you have this issue, but part of it is you really don't have champions around who have experienced it. But even within mature, more mature ESOP companies, it's important to really have that culture and be sharing those stories. Otherwise, every new employee or welcoming through the door, is now on on really that same trajectory in that same journey. I think that one thing that we've seen clients do a variety of different things. But really helping to visualize it and really visualize that compounding effect is that so hard that, you know, this is why we start the 401k. So early, but this is why you want to be in the ESOP early and stay in. Some have used kind of that snowball, you know, as you're rolling the snowball, it starts really large, but it's, it's picking up the whole time and it's growing. We've also seen some use kind of like visual representation of like planting a forest to plant a tree. So you have one tree, you get shares, and it, it hopefully grows, if it's a good year, you know, the weather conditions were right, maybe it grows a lot. But not only does it have the opportunity to grow, but the next year, you get the next tree, and to really see that compounding effect, staggered up. And really that opportunity to to visualize it and personalize it to employees, I think is helpful. And then also to really remind maybe some tenured employees who've seen really powerful accumulation within their ESOP over time. To some extent, you maybe can get a little complacent of Yeah, I mean, that, of course, that's what I have I, you know, Tom and I, we've both been here for 10 years. So you know, of course, we have that, that that's what we expect. But also being able to show, we've seen it in the total compensation statements being able to show like over time what that compounding effect has been. Because usually what you're going to see is that ESOP is accumulating and growing faster than your base pay and benefits and your 401k allocation, contribution. And so just being able to understand that it's really building on itself and helping them realize a higher earnings than they would otherwise realize elsewhere. And which is important to that retention piece as well, for more tenured participants in the plan.
Rich Armstrong 32:13
Yep. So examples, you know, they
Steve Baker 32:17
are they're awesome examples, I'm going to ask a follow up around that. So you talked about the compounding, value creation, why aren't more people leveraging those kinds of things around their employee ownership? Because, you know, a lot of art,
Hillary Hughes 32:35
you know, what's interesting with that, Steve, is we hear some of the same myths that you hear when talking about open-book management, you know, my, my employees won't understand the numbers, or it will just take too long to communicate it, or once I share one number, I have to share all of the numbers. Right. You know, it's some of it is just really common misconception. And then other, you know, depending on where you are, in your business growth cycle, as well, as you know, what you're experiencing economically, sometimes it just falls too, too far down on the priority list. You know, there's so many other strategic projects, you know, we just don't have time for that. Whereas it actually might help give everybody alignment clarity, and having a few more people hustle a little bit more to the goal, if they just really understood better how it could personally impact them and benefit them.
Steve Baker 33:34
Yeah, good point. Yeah, a lot of the same issues. Right. I don't have time, don't have the resources. I'm too busy to be amazing.
Hillary Hughes 33:44
I think it's I think it's interesting. For some of the companies that we've we've introduced to the game and suggested they would really benefit from it. Their perception is that everybody who plays the game must be an ESOP. Because why would any employee do it if they weren't an owner, and you have so many great stories of how, really through that transparency, education, accountability, that everybody has a stake in The Game, and it's sharing in that outcome? And it's such a powerful tool? It's just unfortunate. Not not all ESOPs are maybe convinced that it can really impact their business as well.
Steve Baker 34:25
Yeah. And you bring up a great point. I mean, it isn't always that you have to have equity either. I mean, people tend to want to do well, if they know what to do, they tend to do it better. Right? And that's kind of a basic thing for us to sit here and talk about, but for everybody listening, just try something. Just try to teach them something and see what you get out of it.
Rich Armstrong 34:49
You also mentioned Well, one thing that Tom said is that just want to really, you know, reiterate for the audience because it's this idea that, you know, there's other ways you can incentivize, in kind of the short term, middle mid term type of things that builds up to the value. And I love the story that Tom shared. But I think you we've talked before Hilary is that a lot of people think, you know, ESOP or it's ESOP, or nothing else. And ESOP is really, it can be "and" right that there are studies out there that, you know, ESOPs tend to have really strong 401, K's as well, and those types of things. Can you talk a little bit about that?
Hillary Hughes 35:31
Sure. What we've seen with the ESOP companies we worked, we work with a lot of them, it's really their benefits. So traditional insurance that the health care 401 K and ESOP. Now, many times right after a transit transaction or transition to ESOP, we do see companies put maybe suspend a 401 K match for a period of time, but many of them after they pay off the financing that was used to make the ESOP purchase, go back to resuming a 401 K. Now, not all, but that 401 K is left open, so that employees still have an opportunity to be making deferrals to a brought to a diversified retirement plan, that they really have the power to direct on their own. And so that's where really just looking at across of the spectrum. We don't ... ESOPs are not going to be able to attract and retain talent, if they're not paying at market for compensation, and for benefits, and really, that, you know, just culture and a lot of the other perks, if you will, that might be in a specific industry. ESOPs are doing that, and it's really, and that ownership and wealth building. Now, it is not a short term plan. It is not a short term bonus, which I think for some employees, it's just I'd much rather have the cash right now.
Steve Baker 37:08
Yeah, exactly.
Hillary Hughes 37:09
Yeah. And I'm sure that's true. You'd much rather would. But the power of this investment is really to be state to stay invested to accumulate and grow that investment over time.
Rich Armstrong 37:25
Yeah, absolutely. And I think I see a lot of companies, even with the bonuses, and you know, most, Aesop's would have some kind of a bonus program. And I know there's so many buckets that can be filled. But and you got to look at that. But I think it's the power again, going back to teaching people the business and really getting focused on the value, you're creating the profits that you can start to share with your employees, both short term and long term with the employee with employee ownership connection.
Hillary Hughes 37:52
Yeah, I think that the projector example is so powerful if if we did allow them to trade it, I mean, that's really what you're trading in your investment of something that is not going to hold value, and that actually might cost you in the end.
Rich Armstrong 38:10
100-Got-Junk. Well, we've had a really good conversation, I appreciate it. We always it's always great to talk with you guys. And and Or is there a we always like to end these with? Is there a question we are missing, that we should be asking you before we close up?
Tom DeSimone 38:32
I was thinking about this, Rich? You know, I think I'm keeping that in the mindset of culture and purpose. Maybe one of the questions given, given what the macroeconomic environment looks like today, you know, we have record inflation. We have costs all over the board on both labor and materials that are rising. Unemployment is at historic lows. But yet we keep finding these supply chain issues. You know, we can't we it's just a lot of things out there that are very hard to measure. But even harder to forecast, how is the business? Are we going to react to all of these components? And so I think a lot of companies are are hearing from their employees maybe a little concern, you know, what, what are we going to do? How are we reacting? How are we planning? And so I think what I'm about to say here goes for ESOP companies and non-ESOP companies, I don't think you have to be an ESOP company to do this. A lot of our companies when they talking about employee communication and connecting employees to the business, are really starting to use communications committees. They go by a lot of different names but committees of some type. But these communication committees are meant to really be one thing, a connection point between the executive group of the organization and the individual I got hired yesterday. And inside this committee, it's a safe haven, you can ask questions, you can hear what the company's strategy is, you can bring up ideas that that you have to help push the organization along its its mission and objectives. I think it's a critical time for those types of, of groups or those those committees, because in a period of unknown, unknown creates rumors, rumors start to spread very quickly. And when you're talking about how trying to keep employees retained and engaged, the rumor mill is, it's a strong headwind that you don't want to deal with. So you don't have to share everything, you certainly don't need to show everything. But you need to have a two way street of communication so that people feel that we are on the right path. And if you have a company that we're talking about here, with strong purpose and strong culture, no matter what's thrown at you, employees are generally acting in the best interest because they're all in it in it. So when you guys talk a lot about the stake in the outcome, in my opinion, its employees have a stake in the outcome, and they know that they are going to always act in what they think is the best interest for the mission. And I think that's very powerful in an environment, like what we're operating in today.
Hillary Hughes 41:18
I would just follow since we're talking about taking care of your people. You know, and really, if you get the question about, you know, why? Why another benefit, I would just like more money, I think really taking the opportunity before responding to go back with a question to really understand why why why is that the request and why? Where are they coming from? I think just taking that opportunity, because in terms of Well, I just think I can get more I just want more? Well, here's an opportunity to help understand what does that mean, for everybody else that's here, we're all in this together. You know, if we're playing the game, we're all sharing in the stake of an outcome. If we're employee owners, we're all in this together. So let's really talk about what that means. If I just say yes to a want, rather than a need, and how it impacts every other person you're next to. Or it could enter into a conversation that our employees are really challenged right now. You know, in some markets, that it's affordable housing, or that the housing market is so tight, you know, it's described, house hunting is like a second job. Okay, well, that's a different why and it gives you a different opportunity to come alongside, and maybe just more money, more salaries, not actually going to be most helpful to them, maybe helping connect them with a different resource or been other benefits that you already have, can actually help them solve the problem. So I would just say, you know, when encountered with that, that the easy answer is or the shortest answer is just no. But maybe take that opportunity just to try to dig in a little bit deeper, to further your purpose or culture or to really come alongside and help that employee, fix her or help solve that challenge in front of them.
Steve Baker 43:23
Awesome. Well, yeah,
Rich Armstrong 43:24
really good. Really good suggestion.
Steve Baker 43:27
Hillary Hughes, Tom De Simone, you guys always are like, you're so content rich. I think we're gonna have to set up more frequent podcasts with you guys. Thank you for being here. If somebody wants to learn more about prairie and how you can help, how would they go about it?
Hillary Hughes 43:43
You can always visit us at our website, prairiecap.com. We also have several webinars, on our website articles by industry. So if you're interested in topics along ESOP, or ownership transition, you can find us there. prairiecap.com.
Steve Baker 44:02
Hillary, Tom, thank you so much. Rich, as always appreciate you being here as well, folks, let's keep the conversation going. Send us your questions, your stories, your best practices, your ideas, your challenges, and of course your victories because that is capitalism at its best. Thanks for joining us, and we'll see you next time.
Announcer 44:22
The Change the Game Podcast is produced by The Great Game of Business. To learn more, visit greatgame.com
