When Dave Fox, the former owner of Dave Fox Remodeling in Columbus, Ohio, decided to retire, he sold the company to his employees using an employee stock ownership plan (ESOP).

Fox started the company in 1985 and initially sold 66% of the stock to employees in 1998. In 2003, the company purchased the remaining shares from Fox. He remained president until 2004 when Gary Demos took over the role. Demos says many people have the incorrect impression that employees need to pitch in money for the ESOP. “You use profits from the company to pay for the stock. The time it takes to do this depends on the profitability. In our case, we paid off the 66% in four years.”

Another myth is that employees run the company: This is not an operational ownership, Demos says. Like stockholders, they have a vested interest in the company making money. Employees are given stock and are vested over time. New employees receive increases of 20% each year and are 100% vested in five years. At the time of the sale, existing employees' time at the company was prorated to determine their vested percentage. The amount of stock each employee receives is based on his or her salary. ESOPs also include a plan for employees who leave or retire.

At Dave Fox Remodeling, the ESOP contributed to the company's growth from $1.7 million in revenue in 1998 to $6 million in 2003. Demos attributes part of this to the ownership culture created by the ESOP.

Demos says that employee stock ownership plans can be complicated, and that communication is critical. “We have an ESOP communication committee with six members,” he says. “Their role is to help promote ESOP culture and to communicate issues.”