ABA Banking Journal 5/08 - (Page 24) Community Banking “By putting in an ESOP, we finally reconnected with our communities. And our employees ‘get it’ ” —Stephen Goodenow, President Bank Midwest, Minnesota Iowa Okoboji, Iowa crosses your path, you need to grab them,” says Jones. “And one of the advantages of having some turnover is that, sooner or later, something opens up.” Jones admits that he had to sell the bank’s HR director on this “hire now, fit in later” policy. Indeed, co-panelist Blair Hillyer wasn’t entirely sold on how well this idea would work in his market. “I had someone on the payroll for four years. I got him pretty well trained in a lot of areas of the bank and he’s now a vicepresident for a large holding company,” says Hillyer. “And we’re talking to him a little to see if he wants to return to his roots. But he’s in a big city market now, he’s only about 30, and the lifestyle there is attractive to him. That’s a challenge.” Here’s some dialogue about ESOPs: Glotzbach About eight years ago we started an ESOP. We wanted our employees to have ownership so that they would have more pride in what they do each day. Today, the ESOP owns 18% of the bank. At about the same time we launched a profit-sharing program, where we pay for performance over 15% ROE. Two years ago we paid a total of $1.4 million into the profit-sharing plan. In 2007 we paid $1.1 million. And then the final piece of the puzzle was that we became a S corporation. And the ESOP benefits from that, too. Our ROA was always 1%, but in the years since the ESOP, it’s run 1.5%, 1.6%, 1.7%. And that’s after paying the profit sharing. Goodenow Our bank does business in nine locations—the result of a number of acquisitions where the previous owners left. That tended to leave a void—we weren’t the “local bank” anymore. By putting in an ESOP, I think we finally reconnected with our communities, and our employees “get it.” They understand that they can make decisions that affect the customer, that affect the company. And it’s a competitive advantage if people step up and make decisions—good decisions, hopefully—on behalf of both the company and the customer. We’ve gotten very involved with a group called the National Center for Employee Ownership (www.nceo.org), to leverage that ownership culture. A couple of times a year we do a big deal around ownership. Carson Did you do the ESOP strategically? Or was it one of those things where you needed the ESOP to make a purchase work, or something like that? Goodenow It was a tax transaction, in the beginning. We had merged an S corporation with a C corporation and the C had an IRA with a significant shareholder. So all that, and resulting complications, made an ESOP an attractive tool. As we moved that way, I pleaded, “If we’re going to do this ESOP, let’s do it right. Let’s not just do it for the tax play. So it became part of cultural change in our organization. The ESOP owns 10% of the company now. About 70% of the company is owned by my family and other family members. The rest we’re hoping will end up in the ESOP at some point. Glotzbach You know, one thing about benefits is that many banks offer good ones, but we don’t know how to explain them to our people. Unfortunately, sometimes they go somewhere else, thinking they are getting a better deal. Yet they actually had the same deal—or even a better deal—with us. We communicate our benefits in two ways. New hires meet with our HR person. Employees receive a statement four times a year that demonstrates the value they are getting from the profit-sharing plan and the ESOP. Now if you look up our numbers, you’ll see we’re probably the highest paying, as far as benefits and salaries, in Indiana and I firmly believe you get what you pay for. BJ NEXT MONTH IN PART II The roundtable bankers tackle the thorny issues of employee medical plans and incentive compensation. Also, a focus on one roundtable banker’s use of an employee profiling product that he’s found very helpful. Universal appeal of ownership This led the bankers into a technique that some have found very helpful for retaining employees: giving them a piece of the action through formation of an Employee Stock Ownership Program. For some banks, this wasn’t practical, nor immediately appealing. Frank Carson of Mulvane State Bank, for instance, pointed out that his family, which now owns the bank, had worked for years to achieve that. So it was unlikely the family would turn around and dilute its ownership with an ESOP. Other bankers could hardly find enough superlatives to describe their experiences. One strong booster moved into an ESOP for the sake of employee retention, and the other turned what was originally a tax transaction into a strategic move. 24 MAY 2008/ABA BANKING JOURNAL “When somebody good crosses your path, grab them. One of the advantages of turnover is that, sooner or later, something’s going to open up” —Robert Jones President and CEO United Bank, Atmore, Ala. http://www.bankmidwest.com http://www.nceo.org http://www.ubankal.com
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