Iowa Center for Employee Ownership recognizes, promotes vital role of ESOPs across the state

This story first published in “Celebrating Employee Ownership,” a special section that celebrates employee ownership during National Employee Ownership Month.

An efficient, prosperous operator in a growing market, Stellar Industries had its share of corporate suitors.

“We’ve been approached by international companies over the years,” said David Zrostlik, the company’s president. “In the end it was all about, what can we do to retain the people who have got us to where we are today?”

Answering that question led to Stellar’s becoming fully employee-owned in January 2023.

“They want to reward their long-time employees,” said Deb Giarusso, senior program manager for ADVANCE IOWA, a program operated by the University of Northern Iowa’s business and community services group. “They want that community to stay vibrant, and they recognize their business is a key part of their smaller communities.”

That’s the case for Stellar, which employs about 500 in Garner, Iowa, and another 200 at other locations in Iowa, Nebraska and Pennsylvania. The company builds heavy-duty specialized work trucks, including boom-equipped powerline service vehicles.

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“We draw (workers) from quite an area, because Garner’s only about 3,200 (people),” Zrostlik said.

Recognizing the role employee ownership can play in the vitality of Iowa communities led to the launch in May of the Iowa Center for Employee Ownership (IA-CEO), aimed to support and promote employee ownership among Iowa businesses. ADVANCE IOWA manages IA-CEO operations.

Several other states — by one count around 20 — have started similar programs to support ESOP transitions, and several more states are considering it.

“It’s been a busy year, setting up the organizational structure,” Giarusso said. “We have people on the academic side, we have people in economic development, we have service providers, and we have employee-owned businesses. We have a very broad group of stakeholders that are advising us.”

IA-CEO’s staff provide legal and business advice to the owners of companies contemplating a shift to ESOP.

“They’re doing great work for future ESOP companies,” Zrostlik said. “We’ve been around a little bit longer.”

Stellar going 100 percent employee-owned was the culmination of a gradual process that began the year after Zrostlik’s father co-founded the company in 1990. The initial motivation was a simple need for working capital.

“Early on, as a start-up company, you’re always looking for funding,” and an employee stock-purchase plan generated some of that cash, Zrostlik said.

Employees held about 27 percent of Stellar’s shares by the late 1990s, prompting an offer by the company to redeem outside shareholders’ stock. In 2018, a large shareholder died, and Stellar negotiated with his estate to purchase those shares, pushing employee ownership to more than 50 percent.

Realizing Stellar’s most veteran employees saw the most from their stock ownership, management decided to go 100-percent ESOP, distributing more benefits to more recent hires.

“We had 50 employees that had 70 percent of the ESOP value,” Zrostlik said. “At that time, we were about 600 employees, so we were out of balance. We looked at ways to distribute shares to new employees, but nothing seemed to fit with us until someone said, ‘If you were 100 percent employee-owned you wouldn’t have to deal with this.’”

It’s been a smooth transition.

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“We don’t see much difference in day-to-day operations,” Zrostlik said. “There are some customers we’ve reached because we’re 100 percent employee-owned and they’re employee-owned as well. Our younger employees are much more engaged and looking forward to their career here.”

“Most of the time those roles really don’t change that much,” Giarusso said. “Much of the organizational structure that’s in place will continue after the transition.”

That’s the kind of reassurance IA-CEO can provide to owners contemplating ESOPs.

“These business owners don’t necessarily want to speak in front of a group,” said Stacy Mullinex, an ADVANCE IOWA program manager working at the new center. “They don’t want people to know they’re considering selling the business. We’re there whenever they’re ready to speak to us.”

Tapping experiences of companies like Stellar will be a big part of IA-CEO’s mission.

“Employee-owned companies are very willing to share and collaborate with each other,” Giarusso said. “They’re very receptive to talk to us, to share what they’ve learned.”

Employee owners favor keeping their companies in their hometowns, supporting local economies and projects. Stellar donated $50,000 toward construction of a high school sports complex in Mason City, where the company has a plant, and $100,000 in July to finish a baseball/softball complex in Garner.

“We still maintain our roots here,” Zrostlik said.