ESOP Fables And Facts

IN THIS EXCLUSIVE PCT INTERVIEW, CHUCK STEINMETZ OF ALL AMERICA TERMITE & PEST CONTROL EXPLAINS SOME OF THE FACTS AND FICTIONS ABOUT EMPLOYEE STOCK OWNERSHIP PLANS.

The Employee Stock Ownership Plan is a vehicle that has been available to owners of private businesses for many years to enable them to give a portion of their company's stock to the people who do the lion's share of the "trench work" for the company. ESOPs push the team concept to its ultimate end, creating new motivations for employees to strive to achieve ever greater performance both for themselves personally and for the company as a whole.

For the pest control industry, on the other hand, the Employee Stock Ownership Plan remains a relatively new and untested concept. All America Termite & Pest Control, based in Orlando, Fla., established an ESOP last year, becoming one of the first privately owned pest control companies to do so. (Over the last decade, All America, which pioneered "once-a-year" service frequency in the pest control industry, has grown exponentially to become one of the largest privately held pest control firms in the United States, with more than 80 offices spread over seven states in the southeastern United States plus Arizona, and projected 1995 sales of $100 million.) In this PCT interview, we asked All America President Chuck Steinmetz about his company's experience with its ESOP to date, and about how All America has been able to achieve its phenomenal growth.

PCT: What was the primary factor or factors that motivated you to establish an ESOP for the employees of All America?

Chuck Steinmetz: We began with the idea that it's the employees that drive the business. The direction has to come from the management of the company, but it's the employees that drive the success of the company. The people who go out and sell the new accounts and service our customers are deserving of more than just a paycheck. By involving them in a stock plan, where they become owners of the company, a more meaningful relationship is created. The employees realize that by improving the quality of the service they provide, they will do more business, and hopefully, will make more profit. How do you get somebody to pursue that level of quality? You tell them that they own the results.

PCT: Did you do any internal studies with your employees, such as what would make this ESOP plan more attractive for them?

Steinmetz: Well, no, I really didn't. The employees really weren't part of the process. When I started the company, I wanted to create a different compensation level, so that all of the people throughout the organization could be compensated at a much higher level than they would at other companies within the industry. Having worked for Orkin and Truly Nolen, I knew exactly what to expect. And we were able to recreate the way we do sales and production so that people could actually earn about 50% more than they could earn working for any other company.

In addition to that, I felt that if it built the company rapidly and earned the profits that we were capable of earning, that giving it back to the employees in stock for the company was just a natural thing. I had always wanted to share the ownership of the company with our employees from the very beginning.

PCT: How have you dealt with your company's rapid growth? As a growing business, you obviously had to bring in human resources, computers, marketing, all those sorts of things that in the past weren't a major part of most pest control operations. How did you deal with it, and how did you find the key people you needed?

Steinmetz: I realized early on that as the business took off, and started to grow to substantial levels, that more structure would have to be installed at each stage to keep it growing. And I realized I couldn't do all of those things myself. So I had to involve myself with people who are experts in certain fields. I had to find them and bring them into the company so that they could grow with it. And I offered some tremendous packages to some of these people, which included unusually high earnings, to attract them away from other industries and other companies. I realized that when the team was coming together, that it had all the semblances of a very large company, but in a much smaller company. As a result, it gave us the ability to identify the changes that had to be made probably a little sooner than when they had to be made so that we could take advantage of being small enough and equipped enough to make changes for intelligent reasons as opposed to just trying something.

Don't get me wrong. We've made some mistakes. Some outrageous mistakes. But the fact that we're where we are, in spite of all the things that we've done wrong, it says that the original plan really had enough credibility built into it so that it could generate this kind of business, and go way beyond what we anticipated.

PCT: Did you have concerns of bringing people who did not have a pest control background into the organization? Or did you look at it more from a general business perspective than strictly as a pest control operation?

Steinmetz: No, the technical background was the least important thing that we looked for. Let me give you an example. Our marketing director, Leal Kellett, came in with an MBA from Dartmouth, and with a background of being a marketing director originally for Scott Paper, and then for Sears Carpet Cleaning. So when he came (on board with All America) he didn't know anything about bugs. But he did understand how you differentiate yourself and get people to understand what you're trying to say, and convince them to buy from you. He came in eight years ago when we were about a $20 million company. His involvement has made it four times larger in just a few years.

PCT: How have computers and management information systems contributed to All America's success?

Steinmetz: Another thing I realized early on was the importance of having modern computers and systems to support everything that we were doing and to give us information that was useful and timely. We fell into a bit of luck by finding a software development company that was struggling. I happened to know the owner and invited him to move his operation into our offices so that he could build his business and he could help us grow our computer section all at the same time. We still have that relationship today, although we're stand-alone companies, both very successful. They're still supporting us, and this support has enabled us to build tracking systems of everything that happens to the business from the first customer contact all the way to the point at which we renew the customer for the following year.

PCT: Where does the ESOP fit into your Commitment to Premier Service (quality control) program? Is it an extension of it?

Steinmetz: Yes. We did the quality effort first. The Commitment to Premier Service program was installed so that we could identify levels of quality and involve people specifically in reaching for a particular level of excellence. Once we felt this program was successfully established, we wanted the people who have generated this excellence and quality service to be involved on an ownership basis. And we've found that that has a real attraction to folks when they're interviewing with us.

PCT: With a lot of continued consolidation possibly ahead in the industry, do you see other firms following this route as they consolidate and grow?

Steinmetz: It depends on the individual owner. If it's a family-owned business, many of them don't want to share the equity with their employees. They want it for their own family. If it's a publicly traded company, there's really no reason to do it. In an ESOP plan, employees receive stock as a gift. They don't have to buy it. I don't see other firms following this route, unless there's a particular owner who sees it as creating more of a value for the employees, which then also benefits the company through better employee performance and dedication, which should lead to increased profits.

PCT: How have you been able to share the vision with the other employees, directors and so forth, to achieve the growth that you have achieved? Obviously, you had this different approach that you wanted to do. How did you learn to share that with others and make it successful?

Steinmetz: I feel that most successful entrepreneurs are in a sense missionaries. They have to have the zeal to project a successful direction to what they're trying to do, and they can see the end result. They are able to convince them to become involved, so they can experience the success, not only for the company, but for themselves.

One of the things that I've found in working for other companies is that, as successful as I may have been with those other companies, I didn't feel like I was accomplishing anything for myself. I was accomplishing a lot for the company. I was paid what they told me they were going to pay me, but that wasn't enough. So what I wanted to do was create a different reason. I wanted really good people to perform on the same levels that I performed and not want to leave because they felt they were getting back something commensurate with their effort.

PCT: Is that why there's such an emphasis of the team approach here?

Steinmetz: Oh, sure.

PCT: Do you think others in the industry can learn from that?

Steinmetz: I think that any business, not only in our industry but any industry, can learn from what makes somebody else successful. I have friends who own other kinds of businesses, and discussing with them the things that they do successfully helps me to determine what we're going to do also.

PCT: You've done some very progressive things at All America. What else is on the drawing board? What else would you like to see for your employees?

Steinmetz: Well, we would like to see them take an even greater responsibility for the performance of the company. My attitude is that each employee is a profit center. It isn't the company, or the branch office, it's each individual employee. Each person should understand what they do to make their position profitable for the company. Now it's really easy to understand that if one of the trucks only does $6,000 in service revenues a month, it's not as profitable as a truck in the next territory that does $12,000. So what we want to do is work on getting them both up a notch.

Once you clearly identify those areas that determine the profitability of the position, then you know how to teach the people the things to do so that they can feel good about having made a profit contribution to the company.

And the comeback from all of that is that when the (ESOP) statements are distributed with the value that they have received for their effort in the company, it all ties together and they can say, "Gee, I helped make this for myself."

Chuck Steinmetz is President of All America Termite & Pest Control, Orlando, Fla. Jeff Fenner and Pete Fehrenbach are, respectively, Senior Editor and Editor of PCT magazine.