Health Business Report Gains from Going Employee-Owned
Employee ownership may seem like a strange model for the healthcare industry, but a small number of companies have made the switch - and they say it’s helping to improve their recruitment and retention.
EmpRes, based in Vancouver, Washington, and focused on home health, hospice and personal care in seven states, switched to its Employee Stock Ownership Plan, or ESOP, model in 2008. The prior owner, who was an entrepreneur, decided to sell the company to employees instead of simply cashing out because he thought it was the best way to keep the company thriving, said Brent Weil, EmpRes president and CEO.
“He was looking to exit, but he wanted to exit and keep the culture and management alive,” Weil said. “And it’s created a whole culture of being part of something bigger.”
When employees own the company, it tends to create a bonding experience, improving morale and encouraging workers to provide services and protect the company’s reputation as their own, said Cindy Cour, vice president of human resources at EmpRes.
“I think that’s the biggest piece that really drove the culture change, as performance improves and workers take ownership, they also see financial benefits,” Cour said. “We’re really in it together rather than the owner getting all the profits.”
ESOP plans first took off back in the 1970s, part of a law enacted by congress called ERISA, or the Employee Retirement Income Security Act. That act is best known for the creation of the 401K, but it also somewhat quietly also established ESOP plans, Cooper said.
“That legislation was all about creating retirement vehicles,” said Ed Cooper, president and CEO of Acuity Healthcare, another ESOP which has hospitals and facilities in four mostly Eastern states.
And actually as retirement plans, ESOP programs actually tend to outperform the more traditional 401k, Cooper said.
“So ESOPs, if you compare them to 401Ks, the ESOPs on average do about 15 percent better than 401Ks,” Cooper said. “And we’re able to offer both, actually.”
But despite the advantages, employee ownership hasn’t really taken off in the healthcare industry. Officials at both EmpRes and Acuity Healthcare said they’re the only healthcare companies they know of that are employee owned. They were also unaware of each other’s existence until this story.
Cooper, who founded Acuity in 2000, said he’s somewhat OK with that lack of publicity. He switched his business to the ESOP model in 2014, and he likes the advantages it gives for recruiting and patient care.
“I want to keep it a secret,” Cooper said with a laugh. “Say we’ve got a job and I want to hire the best and brightest. I can tell them they’ll be an owner, and I really mean it.”
He had been eyeballing ESOP plans for several years, and finally decided to make the switch in 2014 because he thought it would improve company performance, Cooper said.
“The way we achieve our priorities is through our employees,” Cooper said. “I thought this could be very important. I thought what would set us apart is if our employees owned the company.”
Employee ownership has changed the dynamics of the business for the better, he added.
“It’s not management driving the bus, it’s the employees and management,” Cooper said. “And I think it’s worked out real well.”
EmpRes has also had a lot of success with its model. The company was ranked 21st in a listing of the top employee-owned businesses in the United States in 2016 by the National Center for Employee Ownership, which is still working on its 2017 list. There are about 1,100 ESOPs overall in the country right now.
“It’s fantastic,” Weil said of the ranking. “It definitely supports everything we’re trying to accomplish.”
EmpRes has about 5,500 employees, and Weil said the employee ownership plan has helped significantly with retention.
“We strive to be the employer of choice in every community we operate in,” Weil said. “I think our strength is on the retention side. Our rates are far below the industry average.”
EmpRes turnover rate so far in 2017 is 35 percent. In 2016 that rate was 59 percent, compared to the nearly 100 percent industry average, Cour said.
“The numbers fluctuate a bit,” Cour said. “Once an employee has vested accounts, though, those accounts are theirs to keep and they tend to stick around.”
ESOP plans are fairly consistent in how they work. It takes six years to be fully vested in the plan, with the first distribution available after employees do 1,000 hours of work in their first year (which is less than half of the 2,080 hours in a full-time year). The stock is generally private, with some companies requiring workers to cash out if they leave, and others not.
Still, it takes time for new employees to understand what it means to be owners of their own company, Cooper said.
“When you become an employee owned company, the employees still feel like employees,” Cooper said. “It takes a while for the employees to digest that they own the place.”
One of the things Acuity did during the transition was to identify employees who were engaged and interested in employee ownership, and then involve those employees with teams to help change the culture, Bien said.
“It’s very important for us that they were engaged in the process,” Bien said. “For example, we have employee committees at every location. They’re charged with education, sometimes they plan parties, they have skin in the game.”
The company also does quarterly calls with all the committees to keep employee-owners in touch.
“So our folks in the Ohio Valley don’t forget about our folks in New Jersey,” said Lisa Bien, Acuity’s vice president of communications.
In one example of how employee ownership has helped, Bien said an employee noticed tray tables were delaminating and cork was coming out at one of the facilities. That employee, a nurse, went to the infection officer and notified him that Acuity paid for them and they were faulty. The company complained to the manufacturer and they were replaced for free.
In a more traditional healthcare company, it’s likely those trays would have either just been left as they were or reordered, costing even more money, Bien said.
“That’s part of taking true ownership and pride,” Bien said.
Acuity has about 150 employees at each of its six hospitals, and about 900 employees overall.
“Across the spectrum of employee owned companies there are some that are that in name only,” Cooper said. “And there are some where senior management wants to fully engage employees. We went even further. We’ve put some employees on our board of directors.”
Cooper said he could have sold the company or divested, but he chose the ESOP because he wanted to give credit to his employees.
“I owed it to the employees,” Cooper said. “We were successful because of the employees. I did it for them.”
He also thinks employee owned models could give federal officials looking at single payer healthcare a run for their money.
“Hell, I think employee ownership is the solution to our healthcare problems,” Cooper said. “It gets the politicians out of the equation. Every employee is an owner.”
As the founder, he now considers himself an employee of his former employees, he added.
“I thought it would be wrong for me as a CEO to get the same benefits our employees get, so I don’t,” Cooper said, noting he’s not part of the ownership plan himself. “I work at the discretion of the employees.”
Reach Sue Vorenberg at [email protected].