Davey Tree Flipbooks

11 September/October 2019 | THE DAVEY BULLETIN HOW THE ORIGINAL ESOP PLANTED THE SEED FOR EMPLOYEE OWNERSHIP AT DAVEY Three key elements came together in 1979 to make it possible for Davey Tree to become what it is today – one of the largest employee-owned companies in the world. Forty years ago, the employees were able to buy the company from the descendants of John Davey because of these three components of the employee-acquisition deal. To make the sale happen, the employees and the company together had to buy more than 215,000 outstanding shares of Davey Tree stock. First, 114 employees subscribed to buy 64,552 shares. This original stock subscription commitment amounted to about 30 percent of the shares the employees and the company had to obtain in order to afford to buy the company from the Davey family. This meant those employees personally committed to, on average, an investment of $12,740 – about $44,000 in today's dollars – to make the employee acquisition a reality. Second, Martin L. "Brub" Davey, Jr., was the sole family member who agreed to defer the sale of his shares of Davey Tree stock. Brub Davey told the employees that he would hold on to his approximately 63,000 shares in the company, thus lowering the amount of cash the employees needed for the acquisition. Brub entered into a separate agreement to sell his shares to the company at a later date, and he did so in 1980. Brub Davey's shares, although a minority interest, represented a significant amount of stock and would have increased the up-front cash required by almost $1.8 million. Finally, and most importantly, is the role the original Employee Stock Ownership Plan (ESOP) and the Employee Stock Ownership Trust (ESOT) played in the employee-acquisition. The ESOT, as a separate legal entity, included the ESOP. The trust borrowed approximately $2.7 million to buy about 150,000 shares from other Davey family members. Davey Tree, the company itself, guaranteed the loan. Those shares bought by the trust were administered by the ESOP and represented about 70 percent of the shares needed to make the acquisition happen. "This was the biggest piece of the pie," said Dave Adante, retired chief financial officer, executive vice president and secretary. Adante joined Davey in 1979. "That's where the majority of shares were acquired and where most of the debt was incurred." Each year, the company made a payment of principal and interest – which it could deduct from corporate taxes – on the loan the trust had obtained to pay for its big piece of the stock pie, Adante said. "It was a unique employee benefit law Congress had passed in 1974 to encourage employee-ownership, and it gave, in this instance, an incentive to the company by allowing the deduction of both the principal and interest payment. It effectively transferred ownership of those shares from the family to the trust, and then from the trust to the employees who were participants in the original ESOP." Starting in 1979, and each year following, a portion of those approximately 150,000 shares was allocated to employees until they were all disbursed. The allocation hinged on a complex formula based on the W-2 wages of employees participating in the ESOP and the principal and interest payment made by the company on the trust loan. To benefit from the ESOP allocation, employees had to meet certain criteria, including working in qualifying job positions, being 21-years-old with at least one year of full-time service and being non-union members. Canadian employees were prohibited from taking part in the ESOP due to U.S. and Canada financial laws, although several Canadian employees were among the original 114 employee-owners in the first subscription. In 1979, fewer than 400 employees met qualifications to receive allocations from the ESOP, which disbursed 12,893 shares of the roughly 150,000 held by the plan. The share allocations were made to qualifying employees at no cost to them. "It was a good time to be at Davey," Adante said. "It was considered part of our compensation at the time. It was truly an employee benefit plan." Each year, the number of employees participating in the ESOP grew along with the company, and Davey added other means for employees to become owners. In 1982 the company introduced the Employee Stock Purchase Plan, which made it possible for employees to buy shares at a 15 percent discount through payroll deduction. It also broadened access, permitting Canadian and union employees to take part. Several more stock subscriptions were made available as well following the original subscription in 1979. Subscriptions were offered in 1989, 2002 and 2012. Ultimately, the 150,000 shares in the original ESOP were all allocated, and in 1997 the company introduced the 401KSOP as the primary employee ownership/retirement benefit program, which continues today. MONEY DOES GROW ON TREES

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