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CEO leaves company to her employees

When Iris Harrell decided to retire in 2001, she didn't have an heir to leave her remodeling company to, and didn't want to see it destroyed by a new owner. She she decided to give the company to her employees.

Through the use of a "Employee Stock Ownership Plan," the company's profits are slowly being used to buy Harrell Remodeling from its founder and CEO. After 12 years, the 40-person company is 37.7 percent owned by its employees, who are made fully-vested owners after five years of employment.

Harrell expects the company to be 100 percent employee-owned in five to 10 years.

"As a feminist I have a different perspective of who should have ownership," Harrell said. "I think ownership should be given to those who have worked to make the company successful. That goes all the way from carpenter to top sales person or designer. I don't think it should just go to people who have money -- that doesn't make sense."

An unusual start

The unusual end to Harrell's career in the construction is fitting given its unusual start. Before taking a crack at home remodeling in her mid 30s, Harrell had been a teacher of English and history for five years, including a stint on a Navajo reservation. She was on the road with a band as professional singer and guitarist for another five years and then worked as an administrator at a non-profit.

"My spouse -- we've been together 33 years -- she had just bought her first fixer-upper when I met her, a 1920s duplex in Dallas," Harrell said. "The kitchen and baths were pretty awful. When I met Ann (Benson) I still didn't know what I wanted to be when I grew up. I was just floundering. We just started working on the house in our spare time. I just got really excited about it."

She tried to get a regular construction job, and remembers walking into a hiring hall and being brushed off -- "Honey, who would want to hold your hand at night?" she recalled being told.

"I couldn't get a job, I tried to get any kind of job," she said.

"I met one of Ann's mother's friends who was doing handyman work," Harrell said. "He and I started working together. We both worked for women mostly, widows who didn't want strange men in their houses or lesbians who didn't want strange men in their houses. I worked beside him doing framing and learned the job that way. I worked with a tool belt on for about seven years. I still have some basic tools in my trunk. I don't feel complete if I drive around without them."

Her employees say it's not like working for your average remodeling company. There's a lot more collaboration and laughter, they say. The average employee tenure of eight years is unusual for the industry, the company's executives say.

"I remember reading somewhere you should hear laughter in your workplace and we hear it all the time, even when it's really stressful," said Ciro Giammona, Harrell's president, in a group interview with five other employees. "It comes from being comfortable and respected."

Giammona said it helps that employees aren't harshly criticized for mistakes, such as was the case when a carpenter cut a supporting beam on a home by accident, causing lots of additional repair work.

"Everyone on the team learned from that because the person knew they weren't going to get yelled at or docked," Giammona said.

Project manager Kristen Kleiboer also spoke with enthusiasm about all the ways employes are appreciated, with monthly birthday parties, notes from supervisors, or by being chosen as employee of the month or year. At 10 years of tenure, employees get a song written about them.

"That's what I want, a song written about me," Kleiboer said, causing laughter.

The ownership perspective

Kleiboer said being an employee owner also changes her perspective.

"Just by doing your job you get a part ownership," Kleiboer said. "We encourage people to do your job just a little bit better because that has a big impact for yourself and other employees, so it's a sense of empowerment."

"One phrase you will never hear here is, 'That's not my job,'" Giammona said.

"You are not working for the man, so to speak, we are working for ourselves," Kleiboer said.

Marketing director Bella Babot interrupted, saying "You are working for the woman," which caused the group to erupt into more laughter.

Harrell has retained its traditional structure, although worker-owned companies are more likely than other companies to have a "participatory structure," Rodgers said, where many decisions are made collectively. Deciding whether to sell the company would be a rare instance where employees would take a vote, Giammona said.

When explaining the ownership program, new employees are told, "You should look at it as retirement plan, that's when you will see the retirement benefits," said Susan Pines, the finance and human resources manager.

Giammona said the company hires carefully so as not to disrupt the collaborative culture and does layoffs as a last resort in tough times, with every decision made "for the greater good" of the company.

Under the ownership arrangement, employees receive shares of the company proportionate to their pay levels. Upon retirement or departure from the company, the shares are paid out, possibly into a tax-sheltered IRA. The share price varies over time, depending on the value of the company. But such payouts tend to be much higher than regular 401k contributions made by companies, according to the National Center for Employee Ownership.

For a company to make the move towards an ESOP can actually be a good move financially because of tax incentives, said Loren Rodgers, executive director of the National Center for Employee Ownership in Oakland.

"There are tax incentives for owners to sell businesses to employees through ESOPs," Rodgers said. "It can be a sacrifice and it can be better than the alternative." Another incentive is that "employee owned companies tend to perform better and are more profitable and more productive."

There are 11,000 ESOP companies in the United States, including Kelley Moore Paints, Sleep Train, Round Table Pizza and Mountain View's garbage contractor, Recology. A pair of supermarket chains on the East Cast, Publix and Hy-Vee, have over 200,000 employee owners.

"If you have everyone thinking like an owner, you have better company," Harrell said.

"I will just say I wasn't really motivated by the money part, I was motivated by the longevity part," Harrell said, explaining her decision and referring to her desire to keep the company going for several generations.

Comments

 +   Like this comment
Posted by Observer
a resident of Old Mountain View
on Apr 4, 2013 at 11:51 am

Impressive. Some one who doesn't represent a shining example of greed.


 +   Like this comment
Posted by Scott Lamb
a resident of Monta Loma
on Apr 4, 2013 at 3:33 pm

I think one could call her a shining example of greed, but "shining" in a genuine way and "greed" only in the loose sense of desiring to make money for herself. She's selling these shares slowly, and by selling them to employees, she's giving them incentives to work hard and make her remaining shares more valuable. It's a smart business decision and a way to treat her employees well; enlightened self-interest rather than charity.

It also sounds like an extreme version of the employee stock options/grants offered by many tech companies.

It's a bad retirement plan, though. If the company goes bankrupt, those employees lose their job and their stock at the same time. If they can't sell without leaving, then they should think about either leaving for another company well before retirement (not the effect she was hoping for, I bet!) or, if they can, finding a way to save enough other money that they could get by if the worst happens.


 +   Like this comment
Posted by Robert Berringer
a resident of Waverly Park
on Apr 5, 2013 at 12:13 pm

Scott, perhaps you didn't read the article or possibly don't understand ESOP's. The employees do not pay anything out-of-pocket, the employer provides their ESOP shares at no cost to the employees. NO COST to the employees. I've known the folks at Harrell for years, and not only is this a generous gift to employees in an industry that is usually transient and lacking in any benefits, no less providing for retirement. How many carpenters do you know that have a retirement plan? How many construction employees have a company that provides them with on going training, education, growth opportunities and the ability to have a nest egg when they decide to retire. All companies risk challenging business enviroments, all employees risk losing their jobs, that's life. What is so unusual here is a CEO and Founder who is willing to pass a legacy onto the very people who help build it. She could just as easily sell it to the highest bidder, take the money and run, thus leaving the employees with most likely no job - THAT's greed. And BTW - that's what many of the tech companies have done repeatedly. How many companies do you know that "give" their employees an option to not only impact the revenue and profits, but share in the long term rewards. With an average employee staying 8+ years, that speaks volumes, not only about the CEO but the company culture as a whole. Scott, unless you know the facts, I would suggest you leave your ignorance at home. Congratulations to Iris Harrell and her group of employees who obviously care very much for her, the company and their fellow employees. Wonderful article!


 +   Like this comment
Posted by Scott Lamb
a resident of Monta Loma
on Apr 5, 2013 at 2:27 pm

Robert Berringer: No, she's selling her shares to them. Strictly speaking, she's selling shares to the company, and the company is giving shares to employees in lieu of or in addition to cash compensation. The employees are paying for the shares with their work; she's receiving money for her shares. You can call that whatever you want, but I'm going to call it selling her shares to them. If in total they're getting paid more than they were before, then they're also getting a raise, which is nice.

I'm not sure why you got such a negative vibe from my comment. Maybe you should reread it more carefully. I called this "'shining' in a genuine way", "a way of treating her employees well", and "enlightened self-interest". Those are all positive things.

As I said before, my only concern would be if the employees think this is a retirement plan they can depend on. It's not. I don't know anything about the construction industry, but many employers in other industries offer matched 401ks. Those retain their value if your employer goes out of business, so they're a much safer way of holding your life savings.


 +   Like this comment
Posted by Steve
a resident of Sylvan Park
on Apr 5, 2013 at 2:50 pm

Ignoring the ins and outs of the financial details, it is refreshing to find an employer that actually respects their employees as human beings.


 +   Like this comment
Posted by Hardin
a resident of Cuesta Park
on Apr 5, 2013 at 3:22 pm

""As a feminist I have a different perspective of who should have ownership," Harrell said. "I think ownership should be given to those who have worked to make the company successful. That goes all the way from carpenter to top sales person or designer. I don't think it should just go to people who have money -- that doesn't make sense."

----------------

Here, here. A capitalistic enterprise further refined to create incentive for all participants to contribute to and be rewarded by success. This is a version of capitalism that I can live with, and that I think is sorely needed to become mainstream to avoid the excess and unbridled greed and resulting damage that comes from the unsustainable model we currently have in Wall Street.

Notice too, this model that doesn't need a union to makes things right for workers. I believe the adversarial approach that unions take disrupts, rather than enhances prosperity for all.


 +   Like this comment
Posted by jupiterk
a resident of Gemello
on Apr 5, 2013 at 5:55 pm

Great gesture, indeed. the only gripe I have is her reference "as a female". There are lots of men who have done extraordinary charitable things.If we all look around with an open mind, it is the women , especially the women with children , are very greedy and selfish and they are the reason why men became meaner and violent. Anyways, she deserves lot of credit for what she has done and more of it.


 +   Like this comment
Posted by befuddled
a resident of Sylvan Park
on Apr 5, 2013 at 7:09 pm

"We both worked for women mostly, widows who didn't want strange men in their houses or lesbians who didn't want strange men in their houses"
hmmmmm... Would it be o.k. to say I don't want strange lesbians or strange widows in my house?


 +   Like this comment
Posted by AquaGirl
a resident of Cuesta Park
on Apr 5, 2013 at 11:09 pm

As a single woman it is difficult to have "strange men" in my home....I much prefer to work with women when possible. It's not a bias nor discriminatory, just a safety mechanism. There are good and bad people in every races sex, orientation etc...., but for me, and many of my 30 something friends who are single, we take comfort in knowing we can have someone like, or a company like - Harrell- in my home. It's not that they don't have their employees who are men in homes, I thnk it's important to us to know, that we as a gender are thought about by an industry not generally known for it's compassion and listening, bravo Iris and her team.

To the guy above who is slamming the Esop idea, why don't you ask the employees what they think before exhibiting your ignorance. Sounds to me like they are intelligent and well educated. Many hold multiple degrees (read their website bio) and come with a sophisticated backgrounds. I think they know what they are doing...and how do you know they dont also have a 401(k) in place? I like what this company stands for, and think its great they are transparent with the transfer of ownership.


 +   Like this comment
Posted by Scott Lamb
a resident of Monta Loma
on Apr 6, 2013 at 7:32 am

AquaGirl: I'm not "slamming the ESOP idea". I think overall it's a nice benefit that is good for everyone (former CEO and employees) and was clear on that. Please don't call me ignorant without reading my post thoroughly; it's rude and hypocritical.

The ESOP *is* an investment that could be very valuable. It *is not* the sort of low-risk diversified investment that financial advisors consistently recommend to people nearing retirement age, and it can't be cashed in for something that is until they leave the company.

If it's a small part of their retirement plan, great, but I'm surprised that Susan Pines said "you should look at it as retirement plan" because I wouldn't want to rely on it. Maybe they know exactly what they're getting and are in a really good position. (As you say, they have sophisticated backgrounds.) That quote made me wonder.

If they don't have a good retirement plan, they're hardly alone. "Seventy-five percent of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts." Web Link Given that depressing statistic, I don't think I'm out of line in mentioning my concern. I didn't mean to cause offense, and I wish them all the best.


 +   Like this comment
Posted by Aquagirl
a resident of Cuesta Park
on Apr 6, 2013 at 10:26 am

When the financial collapse hit this country (and globally), thousands of people lost everything, including their retirement. It was out of their control - this at least gives those employees a chance to not only have a retirement, but to participate in building a company, drive revenue and profit and carry on a legacy built by a philanthropic-ahead-of-her-time woman. I don't think anyone at that company looks at this as their sole means of retirement, but as a way to make a meaningful impact. I have two members of my family who chose to go into carpentry after high-school - those are the only two members of our family who are not completely self sufficent at ages 62 and 68 respectively. because they did not have employers who thought long term, only about the immediate profits that lined the owners pockets. I feel very strongly about this having had to watch them suffer. It's not a perfect solution, but nothing in life is. There are two guarantees in life - death and taxes, anything else is just a bonus.


 +   Like this comment
Posted by Hardin
a resident of Cuesta Park
on Apr 7, 2013 at 8:57 am

"If we all look around with an open mind, it is the women , especially the women with children , are very greedy and selfish and they are the reason why men became meaner and violent."

---------------

Wow.

Have you ever had the experience of nurturing and carrying a 5 lb bowling ball in your womb, push it out of your body through a hole normally no larger than inch in diameter, and then raise that bowling ball for the next eighteen years, sacrificing your personal time and career, only to have that bowling ball say to you, "Ah mom, you never let me do anything...you're so selfish and mean..."

I would hazard a guess that if you have gone through this experience, or something similar, your answer would be slightly more nuanced...


 +   Like this comment
Posted by CrescentParkAnon.
a resident of another community
on Apr 15, 2013 at 8:48 pm

> CEO leaves company to her employees

Hmmm, I think selling her company to her employees does not equal leaving her company to her employees ... right .... anyone at Mountain View Online speak English?


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