About
Colorado Pool and Spa Scapes, which builds pools and spas, transitioned to an ESOP structure in March 2021. The ESOP was driven by the desire of the founders and previous partners to continue the legacy of ownership for the people working in the company, as the company's rising value made traditional employee buy-in unsustainable. The company currently has approximately 41 employees.
1. Organization of the Colorado Pool Scapes ESOP
Colorado Pool Scapes (CPS) adopted the ESOP primarily as a wealth-building retirement plan.
| Organizational Aspect |
Details |
| Transition Driver |
The company was growing fast, making the value too high for employees to afford buying shares through distributions. The ESOP was seen as a way to make ownership "more attainable". The availability of PPP money also provided the necessary cash to cover the fees of transition. |
| Ownership Percentage |
The company is 100% employee-owned. |
| Eligibility and Vesting |
Employees must work a minimum of 1,000 hours per year to be a participant. CPSS uses a three-year cliff vesting system. After three years, the shares are 100% owned by the employee. Employees are enrolled on day 1. |
| Share Distribution |
Shares are allocated to employees based on their hourly wages and the number of hours worked in the company. |
| Valuation and Maturity |
The ESOP is currently young(Year 3/4). Annual valuations are performed by an outside company, reviewing earnings, projections, and assets (including real estate owned by the ESOP). The debt from buying out the old owners is projected to take 15 years to pay off, although the CEO has a goal of a 10-year note payoff. |
| Governance Structure |
A formal Board of Directors was formed, consisting of three internal members and two external directors. A Trustee Committee (made up of the three selling shareholders who remain in the company) is responsible for accepting the annual valuation and reviewing any bonafide offers to purchase the company. The trustee represents the employee owners. |
2. Financial Benefits and Wealth Building
The ESOP's financial impact is focused on long-term retirement security, though the company supplements this with competitive wages and other benefits.
- Retirement Security: The ESOP provides a long-term retirement future and is viewed as providing security because its value is tied to company success, not volatile public markets like a 401k. This structure gives employees the confidence that they may be able to retire someday before they are 90.
- Wages and Benefits: The ESOP is explicitly recognized by the CFO as a retirement tool and not a way to increase wages. However, the commitment to growth under the ESOP structure has led the company to become more structured, allowing it to create tiers and pay scales for positions, enabling more predictable raises and a healthier business. The company also offers a 401k plan with 5% matching.
- Holistic Benefits: CPSS offers a comprehensive package, including health benefits, paid holidays, and an employee wellness benefit of $500 per year that can be used on anything that makes the employee "happy" or "well" (e.g., a washer/dryer or a plane ticket). They also offer a charity matching program of up to $500 for monetary donations or time volunteered.
- Impact of Growth: The CEO notes that the focus on growth is essential because the ESOP's wealth-building potential for employees is "nil" if the company remains stagnant.
3. Emotional and Cultural Benefits
The ESOP has significantly shifted the internal culture toward transparency, accountability, and collective purpose.
- Ownership Mentality and Entrepreneurship: The transition has instilled an "ownership mentality" on all employees, driving them to "row the same direction" and put in equal effort because they want to do good for themselves, their family, and their coworkers. Employees are empowered to see themselves as the "CEO of your role".
- Increased Transparency: The shift to an ESOP brought about a dramatic change in information sharing. Before the ESOP, there was a feeling of "secrecy," but now the company is highly transparent with its financials, goals, and business strategy. The company practices Open Book management and holds quarterly all-staff meetings and monthly department meetings where information is shared. This information sharing has helped build trust among employees.
- Stronger Voice and Influence: Employees are encouraged to voice their opinions and give input, which is discussed in leadership meetings. Decision-making is open to listening to all employees, not just upper management. The organization of about 40 employees is managed with a 2-level hierarchy, so it’s rather flat. This allows employees the opportunity to give input and have their voice heard, which gives them "pride and sense of ownership".
- Professionalization of the Business: The ESOP transition forced the company to become "more structured like a real company". This includes tracking budgets, setting Key Performance Indicators (KPIs), monitoring profits and losses, and establishing strategic goals. The sophistication of the ESOP model has required the business to "level up" its operations.
- Legacy and Pride: For long-tenured employees and previous partners, the ESOP secures the "legacy" of the company and provides a sense of pride that their life's work will continue to provide careers and opportunities for others.
4. Tradeoffs, Difficulties, and Inequalities
CPSS faces specific challenges related to its status as a young ESOP in a high-cost region, and internal friction regarding the sharing of decision-making power.