Stories from experience are one of the most powerful ways to understand the impact of employee ownership models. Let?s explore the story of the North Carolina Employee Ownership Center?s 2024 Employee-Owned Company of the Year, Salem Fabrication Technologies Group, located in Winston-Salem, NC.
About Salem
Salem Fabrication Technologies Group was founded in 1934 and incorporated in 1972 as Salem Distributing Company. The company is a worldwide distributor of fabrication tooling, supplies and machinery, and its expertise lies in grinding and polishing hard, brittle materials. Its four core industries are Glass, Stone, Precision Electro-Optical and Ophthalmic. Approximately 80% of its revenue comes from the flat glass and mirror market, including commercial residential windows and glass shower doors. Salem also sells equipment for bullet-resistant glass and offers consumable supplies for glass grinding and polishing.
Salem?s ESOP Journey
In the early 1980s, one of Salem?s two primary owners passed away, leaving Bob Long, a mechanical engineer, as the sole owner. By 2000, Long was exploring his exit strategy and discovered ESOPs.
He especially appreciated the potential tax benefits for a selling shareholder, such as deferring capital gains indefinitely. As a result, Salem adopted the ESOP in 2000, contributing cash in the first two years. By 2002, the ESOP had acquired 33% of the company through a banknote. The company was profitable enough to pay off the initial loan by 2005 and subsequently bought the remaining part of the company without seller notes.
By 2005, Mr. Long retired, and a new board and management positions were established. Salem elected S Corp status in 2006, repurchased management stock, and became 100% ESOP-owned.
Ownership Culture at Salem
The team at Salem understands the need to be intentional about creating a strong and engaged ownership culture to enhance its ESOP. Accordingly, the company provides ESOP 101 training to ensure employees understand the impact of ESOP valuation.
The company also practices open-book management, ensuring employees are always informed about the company’s performance and how they can positively affect it. Employees receive daily sales numbers via email, and monthly huddles are held to discuss financial performance.
Salem also follows the Entrepreneurial Operating System (EOS), and each department tracks critical metrics weekly. The Vision Traction Organizer outlines corporate values and goals. Salem also offers a company bonus based on adjusted EBITDA. With two executives retiring at year’s end, including the CEO retiring next June, the company has adopted an internal promotion succession plan to ensure leadership and cultural continuity.
Company Growth and Financial Success
Salem clearly has a winning formula, as the company?s share value has increased by 333% since the ESOP’s inception. Because switching to the S-Corp status in 2006 led to significant tax savings and freed up cash, Salem was able to make acquisitions in 2005, 2019, and 2023, with another in progress. As a result of these expansions, Salem rebranded to Salem Fabrication Technologies Group.
Employee Perspective
Just as the company has benefited from the ESOP, so have the individual employee owners, who feel a deep sense of connection to the company and its customers, taking extra care to provide great customer service. The company has paid out $22 million in ESOP distributions to employees over the years, enabling frontline workers to pay off debts, buy homes, and spend retirement in ways they would not have otherwise. CFO Gale Marett says that even some of the early skeptics among the employees have become believers in the power of ESOPs to be a win-win-win for the company, the employees, and the customers.
ESOP Leadership in North Carolina
Salem is deeply involved in the ESOP community. It is an active participant in the activities of the NCEOC and is certified employee-owned. Leaders have found that networking within the ESOP community helps share best practices among like-minded organizations, resulting in greater success for all.
We?re inspired by Salem Fabrication Technologies Group and hope you are too! Reach out to NCEOC to learn more about our programs or how to become employee owned.
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