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How to Keep Top Performers on the Job

THE GLOBE AND MAIL – MANAGING – Monday, July 28, 1997

ICE offers an employee share ownership plan that builds loyalty while rewarding good work.

The challenge: How does a private company in an intensely competitive, knowledge-based industry keep key employees from being scooped up by rivals, and how does it attract new, talented workers?

What happened: The owners of ICE Integrated Communications & Entertainment Inc. knew that their best employees were being hounded by headhunters.

For the Toronto-based corporate communications, entertainment and software production company, it was a troubling prospect and something it had to guard against.

"Our assets walk home at night when the doors close, ICE president Doug Keeley says, "This is a people-based business, a very competitive business and there are not that many highly skilled people in the business."

Although he is quick to point out that turnover at the 107-person company is low, he says there were a number of factors in the move to adopt an employee share ownership plan (ESOP) almost two years ago.

"It's insurance in a business that's increasingly competitive," Mr. Keeley says. An ESOP is yet another incentive for people to stay, he says.

ICE chairman Jon Nicholls says it is a recruiting and motivating tool. "It makes people less inclined to seek opportunities elsewhere and more inclined to change things where they work."

An ESOP allows workers to buy a stake in a company, sharing in the rewards – and risks – of the organization. Employee ownership can range from 1 per cent to 100 per cent of a business.

In October, 1994, while investigating ways to raise money for expansion into the CD-ROM market, Mr. Nicholls attended an ESOP information session. "When Jon came back with the idea, it made sense – something clicked," Mr. Keeley explains.

He says they had been searching for a way to spread ownership across the company, build internal loyalty and reward key employees. For Mr. Keeley – who counts the Grateful Dead as an important influence in his life – it was a way to encourage independent thinking through employee empowerment.

"ESOP puts everybody in the band and if the band does well, everybody makes money. If it does poorly, no one shows up."

Recognizing that it needed help to implement the program, ICE approached experts in 1995. Perry Phillips, president of ESOP Builders Inc. of Mississauga, was one of them.

Mr. Phillips, experienced in valuating companies for ESOPs, first helped ICE identify its objectives: U.S. expansion, long-term growth, succession, retaining and attracting key employees, and creating a culture where workers act as owners.

Mr. Phillips and another consultant, Aron Pervin, worked with Mr. Nicholls and the company's accountant, lawyer and vice-president of finance for six months. They surveyed the level of investment knowledge in employees, valuating the company and drafting the ESOP prospectus.

"The most important thing at this point is to make sure employees understand step-by-step what you are doing," Mr. Phillips says.

ICE did this through a series of meetings and one-on-one discussions between the ESOP team members and employees. Mr. Nicholls says ICE also started an E-mail conference to let workers post questions and read issues raised by other workers.

In August, 1995, ICE rolled out a full disclosure document to employees, 10 days before a so-called town hall meeting to vote on the plan. The document explained the market conditions ICE faced, the company's three-year business plan and the rules for joining the ESOP.

At the time, the plan gave employees the option to buy shares at $1 each to a maximum of 10 per cent of their yearly salary, after they had been with the company for one year. Once enrolled in the plan, employees could buy new shares at any time up to 10 per cent of their salary during that year. If employees left the company, they would have to sell their stake.

Of its 42-person work force in August, 1995, 28 employees qualified for the plan and 20 of them invested.

Mr. Nicholls says some people were reluctant to buy shares because they were unsure of the value of the investment. "Some thought it was a move to gain investment from the people who could ill-afford it."

Those fears were cast aside after employees saw gains in the share price of the company.

The shares are now valued at $1.27 each, based primarily on revenue and profit forecasts, with 61 employees owning 14 per cent of the company. People no longer have to be employed for one year to take part in the plan – a three-month tenure is enough. Workers looking to buy in for the first time can do so twice a year.

Employees can bury shares with their own money, through a pay bonus plan or payroll deduction or make use of a company loan package.

Since introducing ESOP, ICE's sales have jumped to $23.6 million in fiscal 1997, from $14.6-million in 1996, and $11-million in 1995.

Mr. Nicholls credits the share ownership plan for part of this increase. He believes employees have become empowered to act as owners and that people now care more about operating costs and sales – scrutinizing monthly financial figures closely.

Richard Long, a business professor at the University of Saskatchewan, says ESOPs may not fit every company, but they succeed in high-technology or knowledge-based firms.

"The work is complex, you need to react quickly and co-operation is important, so how do you get people involved? You bring them on as owners."

Summary review: To build worker loyalty and to guard against employee defections in a knowledge based business where people are your assets, an employee share ownership plan may be the solution.

CASE STUDY
Company Snapshot: ICE Integrated Communications & Entertainment Inc.

Base: Toronto, with offices in Ottawa and New York.

Number of employees: 107

Products: Creates, produces and publishes video, TV, print, CD-ROM and multimedia materials and live events for other companies.

Revenue: $23.6-million in fiscal 1997, ended May 31.

Customers: Among its biggest are Northern Telecom Ltd., Bank of Montreal, International Business Machines Corp. and Hudson's Bay Co.

Mission statement: "We provide our clients and the markets we serve with the highest quality, most innovative products and services at the best value available, while instilling a sense of fun in everything we do."

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