On April 1, 2005, Northstar Plumbing & Construction Inc. converted into an ESOP and is now "employee-owned". What does that mean to employees? It means that employees get shares of the company that, based on the company’s profitability, can increase in value and grow into a sizable sum of money, with the intention of providing a major source of retirement income in the future.

Here are answers to some frequently asked questions:

What is an ESOP?
An ESOP is a government audited Employee Stock Ownership Program for privately-held companies that essentially splits ownership into shares which are distributed over a vesting period to the employees. When the shares run out, no more employees can be part of the program. When an employee leaves, their shares are available for adding other employees.

How can someone become part of an ESOP?
By going to work for an ESOP company. Northstar Plumbing is currently accepting applications for a limited number of journeyman plumber, foremen and trainee plumber positions. Since there are a limited number of positions in the ESOP, hiring will focus on quality, not quantity. For the trainees, Northstar’s unique training program teaches the plumbing trade on-the-job, in its production facility in North Sacramento. Trainees that meet the grade may then graduate to field work where they have the opportunity for higher plumber wages.

How much does it cost the employee?
Nothing. Unlike 401k’s, an ESOP doesn’t require any contribution or other sacrifice by the employee. You can and still should participate in any 401k or likewise program, and Northstar has these in addition to the ESOP.

What factors affect the value of the shares?
Share value is directly related to the value of the company. The value of the company is increased by revenue and profitability. Employees can be the x-factor in profitability because they see wasted materials on the job, employees not working efficiently, potential accidents that can cost the company money. Say, for instance, each employee ‘saves’ the company $114 per week. That would include lost wages, materials or even preventing a water leak. The resulting savings could double profitability and come close to doubling the value of the shares! So ‘working smarter not harder’ has a huge benefit to members of the ESOP.

How many shares do employees get and what is it worth?
Allocations are based on your wage and the current value of the company. The following examples have been made from projections based on current growth, profitability, etc.: for a $12/hour worker, after 5 years there would be $25,000 in that employee’s ESOP account. Similarly, an $18/hour person would have approximately $37,000 vested.

How do I ‘cash in’ my shares?
Shares become ‘vested’, or transferred to the employee, over a period of 5 years. After this time, when an employee leaves the ESOP, his shares must be paid to him by the ESOP, but only after a waiting period of approximately 5 years.

1. Others are usually leveraged or financed completely at the onset. Some use 401k dollars to fund, and the ESOP has to pay either back before the profits show. Northstar is a debt-free ESOP, so profitability works immediately to increase the value of the company and its shares.

2. Most ESOPs are formed by companies on the brink of financial profitability, looking for that ‘extra edge’ created by employees that become ‘employee-owners’ and now have a personal interest in reducing waste and unnecessary spending. Northstar is a profitable company that converted to an ESOP simply because the owners wanted to provide an avenue for employee’s secure retirement-something severely lacking in the construction industry.

In the words of Steve Flanders, co-founder of Northstar Plumbing, “Northstar’s employees are the reason we, as owners, are where we are today. Since most people spend too much time dealing with how to pay the bills today rather than how to pay for retirement tomorrow, we felt (converting to an ESOP) was the best way to look after the interests and futures of our employees and their families.”