Technology Solutions Provider Transitions to ESOP (Employee Stock Ownership Plan)
The employees have taken over at Modern Technology Solutions Inc. (MTSI) The Alexandria, Virginia-based company announced this week it’s now 100% employee owned after transitioning to an employee stock ownership plan (ESOP). The news comes almost nine years after founders Phil Soucy and Tom McMahon initiated the gradual transition.
The engineering services and technology solutions provider has seen revenue gains every year since it opened its doors in 1993. MTSI’s company’s largest customer base is the defense industry and intelligence community, as well as various commercial markets.
ESOPs: Employee Benefits and Risks
In an ESOP model, business owners gradually shift their stakes in a company from themselves to their employees. The transition often allows entrepreneurs to unlock value from their companies. Employees, in turn, pay no tax on the contributions to the ESOP, only the distribution of their accounts, and then at potentially favorable rates, according to Butcher Joseph & Co., an investment banking firm that tracks the industry.
The first ESOPs arrived in 1974 as part of Congress’s Employee Retirement Income Security Act. By 1975, there were 1,500 ESOPs covering nearly a quarter of a million U.S. workers. By 2015, there are approximately 8,900 ESOPs covering 13.5 million employees. according to Butcher Joseph, citing data from the National Center for Employee Ownership (NCEO).
Still, ESOPs involve some risks. Companies that have consistently weak earnings, poor internal controls, and weak succession plans can implode under ESOP ownership models, according to Gibson.
ESOP Interest Among Solutions Providers
MTSI isn’t the first solutions provider to take up the ESOP model this year. Midsize IT company, Phacil, made the transition in January. MTSI’s support of its employees appears consistent, with the company boasting an employee retention rate of more than 93%. The company has 730 employees in 20 offices around the world.
Additional insights from Joe Panettieri.