An Interview With Chad Silverstein

An ESOP is no different than any other company in the sense that to be successful, you must have an engaged and committed workforce all rowing in the same direction. We are no different, but the ESOP in my view does provide a higher level of pride in being an owner of the Company.

In a business landscape increasingly marked by employee entitlement and corporate greed, Employee Stock Ownership Plans (ESOPs) stand out as innovative outliers in business succession. ESOPs not only secure business continuity but also spread the wealth, tying a company’s success to employee well-being. This approach shifts the corporate success narrative towards participation, engagement, transparency, and collective prosperity. In this interview series, we are talking with forward-thinking leaders adopting ESOPs, despite the challenges. As a part of this series, I had the pleasure of interviewing Jim Sliker (CEO) and Chad Ware (CFO), Central States.

Jim Sliker, CEO of Central States See it, believe it and work for it — the ethos that propels Central States CEO Jim Sliker in the boardroom and on the sports field. A believer in working, learning and playing as a community to find opportunities for growth, Jim puts this into practice in his own life. His enthusiasm and willingness to explore helps challenge the way things are done, discovering new ways to exceed expectations in everything Central States does.

Chad Ware, CFO of Central States Fulfilling the company purpose of providing financial freedom to its employee owners is what drives Chad each day. This is accomplished through the success of the Central States Manufacturing Employee Stock Ownership Plan (or ESOP). Chad’s role in accomplishing this purpose is to help Central States become more agile and to empower employee owners to make well-informed, data backed decisions to drive the business forward.

Thank you so much for joining us in this interview series! Before we dive in, our readers would love to “get to know you” a little bit about you. Can you tell us about your ‘backstory’ and how you got started? How would you describe the culture at your company and what has been the biggest contributor? (Jim Sliker)

Our company’s purpose is to provide well-being and financial freedom to our Employee Owners and their families. Well-being means a lot of things like safety, compensation, benefits, wellness programs, development, enabling balance in one’s life, and having fun. However, it is founded on being in a relationship with and caring about each other. Our primary mechanism for providing financial freedom is our ownership model. At Central States, our core behaviors are OWN IT, CAN-DO and ACT IN LOVE. The resulting culture invites employee-owners to be innovative, collaborative, and customer-focused.

How would you explain what an ESOP is to someone who has never heard of it before? Chad Ware)

An employee stock ownership plan (ESOP) provides ownership in the Company to ALL its employees and where ALL employees have “skin in the game” and “stake in the outcome.” ESOPs are federally regulated defined contribution plans, similar to a 401k plan. However, the beauty of ESOP’s is that employee-owners don’t contribute any of their own money to the Plan like you have to do with a 401k plan to receive the employer match. ESOP’s can be designed and operated in all different manners, but at Central States we provide an annual “benefit level” to all employees in the Company, subject to IRS limits. The “benefit level” is the value of shares contributed to each employee expressed as a % of their total earnings in the year. All active employee-owners as of December 31 will receive a contribution of Company stock in their ESOP account as % of their compensation that year. For the past 5 years, Central States has provided an average benefit of more than 20% of employee compensation in the form of Company stock. So, for someone making $50k annually, that’s over $10k each year they receive in Company stock, just by being a part of the Company and living out our values. Each year the Company receives a third-party valuation to update our share price, so as the Company grows, our employee-owners ESOP accounts grow as well. When employees retire or term from the Company, Central States buys the employee-owners shares back in the form of a cash distribution.

There aren’t many Companies that provide this kind of retirement benefit to all their employees, simply by just being employed. This is how we at Central States live out our purpose of providing well-being and financial freedom to our employee-owners. So, you can imagine in a Company that is growing and providing that level of stock contribution each year, employees’ ESOP accounts can grow and become substantial wealth generation for retirement that an employee might not otherwise be able to accumulate working for a non-ESOP company.

Looking back, what was the catalyst that made you start thinking about transitioning to an ESOP? (Chad Ware)

The company transitioned to an ESOP in 1991 when the business founder, Carl Carpenter, sold a portion of the company shares to the ESOP. In 2011 the company fully transitioned to 100% employee-owned. The company founders believed that providing employees stock in the company would give employees “skin in the game” and a “stake in the outcome”, and in doing so, would make the workforce more engaged, take more pride in their work, and be better aligned with the overall Company objectives. Employee ownership is a big driving force behind our culture and is a major way we live out our Company purpose of providing well-being and financial freedom to our employee-owners.

Was there ever a point you doubted the ESOP route? What kept you motivated to push through those challenges? (Chad Ware)

ESOP’s in general are a great way to provide ownership and retirement benefits to all its employees. However, there are a couple of challenges that all ESOP companies must manage and work through.

The first is the repurchase obligation. Because we are 100% employee-owned, we pay no federal taxes, but we do pay annual distributions when employees leave the company. The repurchase obligation is the Company’s cash outflow each year by buying back shares of terminated employees. For a mature ESOP like ours, the repurchase obligation requires quite a bit of planning and modeling to ensure the future cash flows the Company will generate will not only cover the distributions but also have sufficient free cash flow to allow for continued investment back into the business for things like capital expenditures or acquisitions.

The second challenge that I believe most ESOP companies face is communicating the value of the ESOP to the employee-owners. In some ways, the ESOP value is easy to understand, but in some ways it’s quite complex, so we’ve been working for years to help employee-owners, especially those who are young and not thinking about retirement today, to understand the real benefit to them of being an employee-owner at Central States for the long term.

ESOP companies often have a distinctive culture and operational approach. What makes your company stand out from others, thanks to the ESOP structure? (Jim Sliker)

Everyone is empowered to take ownership and make things better. We have a superior service model that our customers have responded to with increasing sales and loyalty in what has traditionally been considered a commodity business. Our unique culture has enabled Central States to differentiate our business on our service model and our promise to customers: Right. On Time. Every Time.

As a mature ESOP, what are the five things you’ve learned along the journey? (Chad Ware)

1. An ESOP is no different than any other company in the sense that to be successful, you must have an engaged and committed workforce all rowing in the same direction. We are no different, but the ESOP in my view does provide a higher level of pride in being an owner of the Company.

2. Educate, educate, educate, the benefits of employee ownership. For many, it takes several years before you start seeing employees place value in the ESOP as they see their accounts grow. In a time where employee recruiting and retention is strategically important, educating the team on the benefits of the ESOP is critical.

3. Monitor closely the repurchase obligation to ensure the Company cannot only fund the distribution of former owners’ ESOP accounts but also will have the liquidity necessary to achieve the Company’s strategic objectives.

4. ESOPs by nature allow you to take the long-term focus in setting and achieving strategic objectives instead of focusing on quarter-to-quarter results. I believe this can be an advantage.

5. All ESOPs have their own unique Plan provisions so understanding all the ways to design the ESOP is important to ensure the Plan design aligns with the Company’s purpose and strategic objectives.

Financial literacy is crucial in an ESOP for employees to understand the value of their shares and how their actions impact the company’s success. What initiatives have you taken to educate your employees about financial aspects and the workings of the ESOP? (Chad Ware)

We celebrate ownership every day at Central States but put extra focus into those efforts during our annual Ownership Week where we host team-building activities and educational sessions to help employee-owners understand the full value of their ESOP participation and celebrate the unveiling of the annual share price. We developed a “Wealth Calculator” to help employees better plan for their financial future and recently launched a quarterly ESOP newsletter for all employees to provide regular updates and education about the benefits of the ESOP. We also spend some time in our annual shareholders’ meeting where I go over the ESOP plan design to ensure our employee-owners understand practically how the ESOP works.

Employee ownership often changes the dynamics of engagement and participation. How have you seen employee involvement evolve in decision-making and daily operations since transitioning to an ESOP? (Jim Sliker)

As Employee Owners, we all have skin in the game and a stake in the outcome. The pride in our company is visible and it translates into everyone working together to provide customers high quality and reliable products and services. And when we make mistakes, we are quick to respond, easy to do business with, and continually looking for ways to get better.

We believe in open book management and sharing what is going on in the business and the whys associated. The employee-owners are encouraged to ask questions, provide challenges, and give feedback. We have a lean organizational structure and regularly hold “skip-level”, town hall, and shareholder meetings where employees have the chance to offer their ideas and voice any concerns to leadership that they don’t interact with daily. Company performance improves when we are all aligned on strategic directions and business goals along with understanding current results. At that point, Employee Owners can connect the dots with how they contribute and are empowered to identify opportunities for improvements and try them.

Company culture and the ability to attract top talent are critical factors for business success. How has adopting an ESOP model impacted your company culture and your approach to recruiting and retaining employees? Do you believe the ESOP model has given you an advantage in the labor market? (Jim Sliker)

Employee Ownership is a major factor in both our recruiting and our retention efforts. When you compare the financial benefits to employees working for Central States vs a non-ESOP company, the benefits are undeniable. Beyond the financial benefits, the employee ownership model has created a unique culture that is empowering and collaborative. Employees know that their voices matter, their well-being is central to our mission, and feel empowered to make a difference in every position.

How can our readers further follow you or your company online?

You can get the latest Central States news through our blog on CentralStatesCo.com or follow us on LinkedIn, Instagram or Facebook for continued information about our employee-owned culture, our ESOP, and how they create a superior business model for our customers.

This was great. Thank you so much for the time you spent sharing with us.

About the Interviewer: Chad Silverstein, a seasoned entrepreneur with over two decades of experience as the Founder and CEO of multiple companies. He launched Choice Recovery, Inc., a healthcare collection agency, while going to The Ohio State University, His team earned national recognition, twice being ranked as the #1 business to work for in Central Ohio. In 2018, Chad launched [re]start, a career development platform connecting thousands of individuals in collections with meaningful employment opportunities, He sold Choice Recovery on his 25th anniversary and in 2023, sold the majority interest in [re]start so he can focus his transition to Built to Lead as an Executive Leadership Coach. Learn more at www.chadsilverstein.com